U.S. tax changes are hitting headline Q4 2017 EPS and 52-week trailing DJIA earnings. Quarterly EPS declines should recover as Q1 2018 results are reported in early April showing the true impact of new tax changes.
The combination of these changes has driven down the Fed value by 11,346 to 29,898. However, dividend-discount value stands at 37,845 down only 6,100 from 43,945 as the DJIA dividend rose to a record level.
It seems that February’s DJIA unwarranted sell-off was driven by preset algorithms that did not like falling earnings and rising multiples.
Focus, rather, on rising record dividends. The dividend discount value of the DJIA at 37,845 continues to put upward pressure on the price of the DJIA and warrants a continuing “BUY” recommendation.
New Tax Act Good for Headline EPS in 2018 but Very Negative In Q4, 2017
The new U.S. Tax Act should lower corporate taxes and increase earnings in 2018 and beyond. However, there are a number of one-time, write-offs that have been, and are, negatively impacting headline earnings from the fourth quarter of 2017. The 52-week trailing earnings of the DJIA are thus falling giving the impression that another earnings recession is upon us.
The 52 week trailing EPS of the DJIA will finally shake off the Q4 2017 EPS in early 2018. In the meantime, the quarterly comparative EPS should start to show the positive impact of the new taxes in early April 2018 as Q1 2018 EPS are reported. This should be on both a 1st quarter 2018 basis over 4th quarter 2017 basis as well as year over year.
This false earnings recession, along with rising T-bond yields, seems to have triggered automatic selling by algorithmic traders and other machine-driven decision makers, which have been programmed to act when EPS drop and multiples soar well outside pre-set bounds. Selling begets selling as fear spreads.
Such selling is considered unwarranted. While it may take a little time to settle down as algorithms are adjusted to recognize the temporary nature of the EPS recession, the upward pressure on the price of the DJIA should continue back toward equilibrium as the dividend of the DJIA continues to make new records as earnings improve and the repatriation of foreign profits gather apace.
