Lower corporate taxes could add up to bigger stock gains in 2018.
That's the message from stock strategists at many of Wall Street's top banks, who are already hiking their stock market return forecasts for 2018 just a short while after going public with lower predictions.
The reason for the increase in bullishness?
Wall Street is just a pen stroke away from getting what they have wanted from the Trump administration since he was elected last November: a big tax cut for Corporate America.
And with odds of the tax-reform bill getting passed rising, stock strategists are starting to factor in the boost in earnings companies in the Standard & Poor's 500 stock index would get once the president signs it into law.
Consider Tony Dwyer. The chief market strategist at Canacord Genuity, a New York-based firm, is now Wall Street's biggest bull. Thursday, he upped his year-end 2018 S&P 500 price target to 3,100 — which is 15.5% higher than Thursday's close of 2,685 — and nearly 11% higher than his earlier prediction of a peak of 2,800.
Dwyer is one of a handful of Wall Street gurus that has upped return projections for 2018 since the Republican-led Congress passed its tax-reform bill this week, citing stronger earnings and economic growth to come next year.
Dwyer now sees the companies in the S&P 500 posting overall earnings per share of $155 next year, up from his prior call of $140. He says stocks can trade at a price-to-earnings multiple of 20 next year. So the simple math of multiplying $155 in earnings by a P-E of 20 gets him to 3,100 on the S&P 500.