Fed Warning: The End of an Era for Stocks
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A recent whitepaper by the Federal Reserve warned of "significantly lower profit growth and stock returns in the future." In that paper, End of an Era: The coming long-run slowdown in corporate profit growth and stock returns, Michael Smolyansky explained how the interest rate and corporate tax rate trends for the last 30 years were a strong tailwind for corporate profits. As a result, stocks performed better than would have otherwise been the case.
Understanding why corporate profits and, ultimately, stock prices outperformed in the past is important. But more critical for investors is the future and assessing how interest rates and tax rates will affect earnings growth and stock prices.
To expand on the article's warning, I examine a few large, well-known companies to see how lower interest and tax rates benefited their bottom lines. But first, I summarize the Fed paper.