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Mon Dec 4, 2017, 09:02 AM

The real reason Wall Street is euphoric over the tax plan (CNN) - [View all]

It's not really because investors think the proposed tax overhaul would unleash enormous growth by creating new jobs and stronger wages. Most established economists have thrown water on that theory.

That's because there's no guarantee companies would use their savings from lower corporate tax rates and repatriated foreign profits to create jobs. In fact, few CEOs have publicly made any such promise.

Markets are betting that companies would use their new spare cash to help investors: by purchasing boatloads of stock and beefing up their dividends. Both outcomes can help propel the soaring stock market to new heights, even if jobs and wages don't follow suit.

"The additional cash will definitely help buybacks," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Investors love stock buybacks because they're less risky than investments in new projects that may or may not work. Even better, buybacks make earnings per share, a key measure of profitability, instantly look better simply by reducing the number of shares in the ratio. Underlying profits don't even need to improve.


Just another day in Re-Branded Feudalist pair-a-dice.

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