Corporate tax cuts and P/E ratio

[tede02]

Last year's tax cuts increased corporate profits by about 21.5% (all things equal) with the stroke of a pen. It seems to me this would really distort Shiller's PE10. Stock prices in the US had looked expensive relative to history for quite some time and then over-night, things changed. Am I over-thinking this? The market obviously reprices the new earnings so perhaps it doesn't matter. I just wonder how different something like the PE10 would look if the denominator were replaced with a pre-tax figure or operating income. 

[DTEJD1997]

Last year's tax cuts increased corporate profits by about 21.5% (all things equal) with the stroke of a pen. It seems to me this would really distort Shiller's PE10. Stock prices in the US had looked expensive relative to history for quite some time and then over-night, things changed. Am I over-thinking this? The market obviously reprices the new earnings so perhaps it doesn't matter. I just wonder how different something like the PE10 would look if the denominator were replaced with a pre-tax figure or operating income.

 

I think this is a MAJOR threat to the market in the years going forward.  Sure, tax rates are low right NOW, but what happens in 2-3 years or so?

 

What happens if a Democrat gets elected to the Presidency? and/or they pick up more seats in the House and Senate?  As a party, they've said they want to raise taxes across the board.  Some Democrats have also voiced concern that the employment rate is too high.  That the economy as a whole is "overheated" and needs to be brought down or cooled off.

 

I think that is VERY dangerous thinking.  Here in Michigan, the economy is good, maybe even very good, but not great.  Of course, the economy here has been depressed for a LONG time.  It would be terrible if the economy here had 8 bad years, 2 good years, and then went back down again.

 

I am also surprised that people are NOT upset that tax rates were not lowered BEFORE now.

 

Whatever happens, the future is certainly going to be interesting!