Washington is in the process of raising the tax burden on corporations, but the stock market doesn’t seem concerned.
The Inflation Mitigation Act, passed by Congress last week, requires a minimum tax of 15% for companies that have at least $1 billion in average adjusted operating income over the past three years. It also includes a 1% tax on share buybacks.
The new minimum rate may sound scary, but it is not. Corresponding
a slim majority of companies in the
have high enough average farm income to pay the 15% tax, but all but about 50 of them already pay an effective tax rate of 15% or more.
These 50 companies recently contributed about 15% to the S&P 500’s total earnings per share. A 15% tax would save about 0.4% of the index’s total earnings per share,
The repurchase tax would hardly be a burden either. In 2021, companies in the S&P 500 bought back about $620 billion worth of more stock than they issued. A 1% tax on that net buyback would amount to $6.2 billion — or 0.35% of the total $1.76 trillion in revenue generated by the companies in the index over the past year.
After all the talk in recent years about raising corporate taxes, the new tax policy so far looks like small beans. The market agrees. The S&P 500 ended the week 3.3% higher, helped by a downtrend in July CPI.
However, investors should be cautious. Individual companies, particularly select ones in the utilities and technology sectors, could be hit pretty hard.
US inflation is easing
The consumer price index was unchanged in July from the previous month thanks to falling energy prices. Inflation slowed to an annual pace of 8.5%. Stocks and bonds rose on the news. The tech-heavy Nasdaq, which recently staged a comeback, entered a new bull market on Wednesday. July producer prices fell more-than-expected on Thursday, suggesting inflation may have peaked. Stocks were mixed. In the week that
Dow Jones industry average
up 2.92% to 33,761.05; the S&P 500 rose 3.26% to 4280.15; and the
up 3.08% to 13,047.19.
The Winning Strike
Crypto trading platform
had a larger-than-expected second-quarter loss on depressed digital asset prices;
posted its biggest quarterly loss ever on falling technology valuations;
had a 26% jump in sales, thanks in part to its theme park business;
had a mixed quarter dragged down by ongoing closures in Macau; Wendy’s blamed higher raw material and labor costs for the lost sales.
Biden signs chips bill
President Joe Biden signed a $280 billion technology spending bill that includes $52.7 billion to expand chip manufacturing.
said it will spend $40 billion on U.S. chipmaking and create up to 40,000 jobs by the end of the decade.
Inflation Reduction Act passed
The House of Representatives approved the Democrats’ health, climate and tax packages on Friday. The Senate passed it on August 7th. It now goes to President Biden.
Hedge fund supervision
The Securities and Exchange Commission wants to make sure hedge funds and other private investment advisers aren’t hiding problems that could shake up the financial system. Regulators are proposing changes to a confidential reporting form that assesses these risks.
New China virus
Researchers in China identified 35 people as carriers of a novel virus that likely spread from animals to humans. The discovery of the virus – which is unrelated to the coronavirus – comes as the country battles its worst Covid outbreak in weeks. The findings were published by international researchers in the New England Journal of Medicine…. The number of confirmed cases of monkeypox continues to rise in the United States
Carlyle’s CEO, Kewsong Lee, went into self-employment just months before his five-year contract expired. Lee and Carlyle said the decision was mutual but did not give a specific reason for the early exit. The departure of a second executive, Nathan Urquhart, was announced days later….Elon Musk sold nearly eight million shares of
valued at approximately $6.9 billion. The CEO moves took place over three days… Peloton Interactive is cutting nearly 800 jobs, closing stores and raising prices as part of a strategic overhaul.
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