Stay Long & Strong

The equity markets are pricing in process of pricing in the cut in tax rates for corporations. The tax cuts are having an interesting phenomenon. One could argue that share prices were overvalued as trailing PEs were in the mid-20s. Such levels are more associated with market peaks than acceleration points. The reduction in tax rates is going to increase after-tax PE for most companies. Only those who aggressively used tax credits and loopholes in the past will be left behind. As investors come to grasp the effects, share prices move sharply higher and may reach euphoric levels especially if investors take momentum investing too far.

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