Cut Inflation Act will ‘negatively impact’ earnings of S&P 500 companies, analysts say

Critics continue to pour in for the Cut Inflation Act, and some analysts have now calculated what the Democratic Party’s big climate, health and tax package could mean for S&P 500 companies.

“Based on our analysis, the negative impact of the IRA on the S&P 500 EPS is estimated to be ~$4-$5 in 2023,” a JPMorgan team said in a note Tuesday, referring to earnings per share. for the entire S&P. 500, which should be well above $200 next year.

“Note, this decline in EPS is largely a function of the 15% accounting minimum tax and the 1% tax on redemptions,” added analysts at the big bank, led by Dubravko Lakos-Bujas.

The new minimum book tax imposed by law looks like a “light” headwind overall for the S&P 500 in 2023, they also said. Meanwhile, the impact of the new redemption tax is two-fold: “reduction in revenue from paying the new tax” and “reduction in overall gross redemptions (all other things being equal) to offset the tax and therefore a greater reduction low of ‘S’ within EPS.

Related: Biden signed the Cut Inflation Act. Here’s MarketWatch’s rundown on how it will affect your energy bills, investments, and drug costs.

“As for new budget spending, the upside remains uncertain in the near term given the tilt toward maintenance spending (i.e. extending the ACA), the typical lag associated with spending to the real economy (e.g. investments, credits, etc.) and the low initial expenditure of the main individual provisions (i.e. Green/EV/Climate),” the team wrote. from JPMorgan.

ACA refers to the Affordable Care Act, also known as Obamacare. The Inflation Reduction Act extends ACA grants for three years, saving millions of Americans who would otherwise face higher health insurance premiums next year.

The S&P 500 SPX,
closed lower on Tuesday as traders braced for the Federal Reserve’s next interest rate hike. The stock market index is down 19% over the year.

Now read: Cut Inflation Act won’t bring prices down much, analysts say

And see : Will the Inflation Reduction Act actually reduce inflation?

This report was first published on September 20, 2022.