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Tax law to spark $450 billion buyout bonanza for Wall Street

1: Tax party: Get ready for the new tax law to create a $450 billion boom -- of stock buybacks....

Posted: Jan 8, 2018 7:35 AM
Updated: Jan 8, 2018 7:35 AM

1: Tax party: Get ready for the new tax law to create a $450 billion boom -- of stock buybacks.

Corporate America is sitting on a mountain of money overseas, built during years of hoarding foreign profits to avoid paying U.S. taxes on them.

The new law gives companies a tax break -- paying between 8% and 15.5% instead of the usual 35% -- to bring that money back to America.

Wall Street can't wait for the roughly $1.2 trillion in foreign profits that S&P 500 companies are sitting on to get returned.

Some of that money will go toward creating jobs and rewarding workers with a raise or a bonus. But analysts believe the bulk of it will be used to reward shareholders.

In fact, Bank of America forecasts that companies will devote $450 billion -- or roughly half the remainder after paying taxes -- to stock buybacks. That's a huge windfall that doesn't even include buybacks inspired by the lowering of the corporate tax rate to 21%. It nearly totals the entire amount that S&P 500 companies bought back in 2016.

If that prediction sounds aggressive considering the tax law is supposed to be about jobs, consider history. During the last repatriation holiday in 2004, roughly 80% of the money was spent on buybacks, BofA said. The firm assumes a smaller percentage now because stocks aren't as cheap this time around. Some cash will also be used to pay down debt, pay for acquisitions and pay for $1,000 bonuses like the ones announced last week by JetBlue, Southwest Airlines and U.S. Bancorp.

Related: Why Wall Street's tax party could be short-lived

This looming buyback bonanza has Wall Street seriously excited, helping to fuel the Dow's relentless race to 25,000. Investors love stock buybacks because they represent a vote of confidence in the company.

Even better, eliminating shares through buybacks instantly makes a key measure of profitability known as earnings per share look better. Companies don't even need to haul in bigger profits.

Wall Street is betting on lots more buybacks from the cash-rich tech world. Apple, Microsoft, Google owner Alphabet, Cisco and Oracle hold nearly $600 billion in overseas cash, according to Moody's.

2. Banks report earnings: JPMorgan, Wells Fargo and PNC are all set to report fourth quarter earnings on Friday.

Overall, big banks had a good 2017. Last quarter, JPMorgan reported earnings and revenue that topped forecasts. Citigroup also had good results, as did asset manager BlackRock, which also plans to reports earnings on Friday. Wells Fargo had a more difficult year, because of the continuing fallout from its fake accounts scandal.

But 2018 will likely be even better for banks -- and especially Wells Fargo. Recent analysis by Goldman Sachs' equity research team found that the bank will get an 18% boost in earnings from the new tax law. On average, Goldman found, the country's seven biggest banks profits will grow by 14%.

Banks stand to gain from the plan's big cut in the corporate tax rate, from 35% to 21%. Plus, higher rates help to boost bank profits because banks can make more money from lending.

Related: Why Wells Fargo could be one of tax reform's big winners

3. December retail sales: The Census Bureau plans to report retail sales figures for December on Friday.

Struggling retailers got a bit of a break in November, when retail sales grew by 0.8% -- better than expected. And economists predict a 0.4% increase month-over-month for retail sales in December, when many Americans did their holiday shopping.

Retailers are bracing for a rough year ahead. Macy's and JCPenney recently warned that they're expecting sales to fall compared to last year, and L Brands, the owner of Victoria's Secret, Pink and Bath & Body Works, slashed its profit outlook for the fourth quarter.

And in addition to shuttering stores in 2017, retailers have been losing workers. While other industries are growing, the retail sector shed 66,500 jobs last year.

Related: Macy's. JCPenney. Victoria's Secret. Big American retailers are still hurting

4. Iran sanctions deadline looms: As soon as Friday, President Trump will have to decide whether to continue waiving sanctions on Iran.

Sanctions are not set to expire for several years. But the waivers, which must be renewed every 120 days to keep the United States a party to the Iran nuclear deal, suspend them temporarily.

Trump waived the sanctions at the last deadline, but it's not clear whether he will do so again. If he decides not to, Boeing's $8 billion deal to sell 80 jets to Iran Air could be at risk. And multinationals like General Electric, which said last year that it was looking at possible business in Iran, could find themselves disappointed.

Related: Who stands to lose if U.S. hits Iran with sanctions again?

5. CES kicks off: CES 2018 officially starts on Tuesday and runs through Friday. Tech companies like LG, Samsung, Microsoft and others use the international consumer electronics show to wow the public with new gadgets.

This year, notably, Intel's CEO will give a keynote address -- and perhaps answer some questions about the chips making some computers and smart phones susceptible to hackers.

Related: Update your software today. Seriously.

6. Coming this week:

Tuesday -- CES officially starts

Thursday -- Delta earnings

Friday -- JPMorgan, Wells Fargo, PNC, BlackRock report earnings; December retail sales

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 253932

Reported Deaths: 5524
CountyCasesDeaths
DeSoto17120175
Hinds16207322
Harrison13353193
Rankin10689211
Jackson10303183
Lee8796141
Madison8232162
Jones6288110
Forrest5949119
Lauderdale5847180
Lowndes5355116
Lafayette494292
Lamar484165
Washington4777123
Bolivar3966108
Oktibbeha392480
Panola368378
Pontotoc362853
Monroe3533105
Warren348498
Union343060
Marshall341665
Neshoba3370152
Pearl River327899
Leflore3002105
Lincoln297085
Sunflower282669
Tate270862
Hancock266559
Alcorn263253
Itawamba262459
Pike262077
Scott246245
Prentiss245052
Yazoo244355
Copiah240849
Tippah240450
Simpson234867
Leake230564
Coahoma230054
Grenada217770
Covington211371
Marion210672
Adams204670
Winston200164
Wayne199630
George199038
Attala193559
Newton191342
Tishomingo184459
Chickasaw183644
Jasper169735
Holmes168567
Clay159033
Stone142320
Tallahatchie140134
Clarke138660
Calhoun135721
Smith120123
Yalobusha116534
Walthall111836
Noxubee110322
Greene109729
Montgomery109434
Carroll104221
Lawrence102417
Perry101631
Amite97725
Webster92224
Tunica86321
Claiborne86125
Jefferson Davis84125
Humphreys82924
Benton81523
Kemper77120
Quitman6888
Franklin66415
Choctaw60313
Wilkinson58325
Jefferson53819
Sharkey42717
Issaquena1596
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Alabama Coronavirus Cases

Cases: 422598

Reported Deaths: 6120
CountyCasesDeaths
Jefferson62039921
Mobile30225548
Madison27052186
Tuscaloosa20728267
Montgomery18978305
Shelby18504114
Baldwin16251182
Lee12465101
Morgan12233113
Etowah11735168
Calhoun11122200
Marshall10191107
Houston8598148
Cullman8023105
Limestone800274
Elmore7836101
DeKalb768397
Lauderdale754683
St. Clair7535120
Talladega6166108
Walker5897174
Jackson580341
Colbert532073
Blount530483
Autauga518455
Coffee441056
Dale396181
Franklin366248
Chilton336165
Russell330310
Covington327268
Escambia316842
Dallas303196
Chambers282769
Clarke281433
Tallapoosa2616107
Pike248729
Marion245650
Lawrence243647
Winston226635
Bibb215147
Geneva201435
Marengo199029
Pickens196531
Hale175842
Barbour172936
Butler169658
Fayette168226
Cherokee160330
Henry153621
Monroe145217
Randolph139835
Washington137626
Clay126145
Crenshaw118744
Lamar118019
Cleburne117423
Macon114735
Lowndes110335
Wilcox103121
Bullock99028
Perry97419
Conecuh94420
Sumter89026
Greene76023
Coosa60515
Choctaw51224
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