"The boost to profits and valuations from ever-declining interest and corporate tax rates is unlikely to continue, indicating significantly lower profit growth and stock returns in the future," Smolyansky says.
Part of the thesis is a gap between the stock market average return and the 2.5% rate of real economic growth.
"Stock price performance above this 2 percent real rate could only be accomplished by the perpetual expansion of P/E multiples.
DataTrek research co-founder Nicholas Colas wrote that the paper's general assumption about taxes and interest rates and their correlation to stock market returns is "obviously true, but only to a point."
Colas noted that interest rates in particular have been on the decline around the world, but global stock returns have been flat since 2008.
Persons:
Michael Smolyansky, Smolyansky, Nicholas Colas, Colas
Organizations:
Federal
Locations:
Washington