Will Trump tax cuts boost U.S. equities?

The minutes of the Fed’s discussion at its March meeting show that several Fed officials believe Trump’s stimulus plans will likely not begin until next year.

In fact, the minutes indicate about half the Fed officials hadn’t included any assumptions about Trump’s efforts in their economic forecasts.

Read: Look for dividend growers as rates rise

Investors hoping for a continued run in equities might not be so level-headed, if they’re hoping potential tax cuts coincide with rising stock prices.

Read: Why U.S. equity valuations continue to climb

To find out if a direct relationship exists between falling taxes and rising equities, Andrew Tanzer, senior research analyst at Gerstein Fisher, reviewed long-term stock trends in a report on changing tax regimes and portfolios.

His research shows that long-term trends appear at first to indicate an inverse relationship between tax rates (on personal income and capital gains) and the historical performance of the S&P 500.

For example, tax hikes in 1941 under Roosevelt coincided with market declines, while tax cuts in 1982 under Reagan resulted in a bull market. But the reverse often occurs as well.

Ultimately, the stock market has risen or fallen pretty much independently of specific tax legislation. That’s because long-term trends must be accounted for, like demographic shifts, innovation, productivity, interest rates and globalization.

“We are not saying that tax changes are not important to investors and to the overall economy,” says Tanzer. Rather, “our research demonstrates a very weak correlation in the past in terms of the short-term impact of tax changes on the performance of public equity markets.”

Read the full report here.

Also read: Don’t be fooled by strong growth expectations

Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.