Zacks

5 Big Winners After Two Years of Tax Cuts & Jobs Act

Tirthankar Chakraborty
5 min read

In This Article:

Although it’s been almost two years since the implementation of the Tax Cuts and Jobs Act (TCJA), most of the upper household income folks are of the opinion that they haven’t got a tax cut yet. Notably, per the New York Times survey and the Tax Policy Center, 89.5% of upper-income folks actually got a tax cut in 2018. However, the survey found out that only 46.4% of Americans believed that they had actually received a tax cut under the TCJA. This is primarily because many of them in reality paid lower taxes for the year, and hence, received lower-than-expected refunds after filing their returns. Naturally, lower-than-expected refunds felt like tax increase particularly for those who depend largely on tax refunds for an annual bonus.

Despite the perception, the TCJA has surely resulted in a lot of winners. Since the TCJA significantly reduced individual tax rates, tax-payers especially in the higher income group reaped the biggest tax savings, which in turn led to increase in real disposable income. In fact, real disposable income per household increased on an average $5000 since the TCJA became law. The TCJA, by the way, trimmed the corporate tax rate from 35% to 21%, helping corporates increase wages for their workers over the last couple of years, and also led to job creation.

The Federal Reserve Bank of Atlanta confirmed that the lowest paid workers currently have higher median wage growth compared to others over the last couple of years. Meanwhile, the US economy to date has added nearly 6 million jobs since January of 2017, and unemployment continues to hover at a 50-year low.

So, what does this mean for the stocks? Increase in disposable income, rise in wages and more jobs will certainly boost consumer discretionary stocks. In fact, the Consumer Discretionary Select Sector SPDR Fund (XLY) soared more than 20% over the past two-year. Additionally, with Americans being confident about their economic well-being, the momentum will continue.

Per the University of Michigan, the preliminary consumer sentiment reading for February came in at 100.9 from 99.8 last month. This shows how optimistic Americans are regarding their finances and the domestic economy nearly 11 years after the last recession. In fact, consumers agreed that they have been witnessing the best growth in wealth compared to any time since 1960. Needless to say, that improved consumer confidence will result in an uptick in purchase of discretionary items.

Top 5 Winners

Since the consumer discretionary sector is poised to gain, picking stocks from the same will be a smart move. We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

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