The new tax legislation, which lowered the corporate tax rate from 35 percent to 21 percent, is “significantly altering how investors value equities and the market,” according to a recent CNBC article.
On CNBC’s Squawk Box earlier this month, Warren Buffett said, “The tax act is a huge factor in valuation.” Simple math, said Buffett, says that the tax bill will result in a stock owner’s share of corporate profits increasing from 65 percent to 79 percent. “That’s more than a 20 percent increase in the earning power,” Buffett says, adding, “And you’ve just given it to me, nothing has changed in the business.”
Hedge fund manager David Tepper of Appaloosa Management told CNBC that, in his opinion, the market still isn’t expensive. “With earnings forecasts going up and interest rates where they are, how is this market expensive?”
The article also quotes Barry Rosenstein of Jana Partners, who says he is “finding more stock ideas that fit the firm’s criteria “than any other time.” He adds, “The economy is growing. Earnings are growing. Rates are at all-time lows. It just seems like the market [rally] is going to continue for a while.”