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The S&P 500 may not get such a ‘big league’ benefit from Trump's tax plan after all

Expecting a big boost in S&P 500 components from a Trump administration tax cut? Hold your horses.

The average effective tax rate among S&P companies that had posted calendar fourth-quarter results as of Friday was 24.11 percent — well below the current corporate rate of 35 percent — according to data compiled by The Earnings Scout, a corporate earnings analysis firm.

"The oomph on that may not be as big on the market" as some investors think, said Nick Raich, CEO of The Earnings Scout.

U.S. equities popped to record-high levels after President Donald Trump said last Thursday that his administration will be announcing a "phenomenal" tax plan over the next two or three weeks. "Lowering the overall tax burden on American business is big league ... that's coming along very well," he said at a meeting with airline executives.

Trump has said that he plans to slash corporate taxes from 35 percent to somewhere between 15 and 20 percent. However, none of the S&P's 11 sectors averaged an effective tax rate higher than 31.08 percent — the energy sector, which includes many companies that reported losses, actually averaged a tax refund.

"Lowering corporate taxes will not affect companies evenly," said Ernie Cecilia, chief investment officer at Bryn Mawr Trust. "We look at it on a company-by-company basis."

That's why "the most bullish thing Trump will do is not the tax cuts," said Raich. "It will be deregulation, because of the money and manpower companies spend dealing with those."

All that said, both Raich and Cecilia agree that small-cap stocks will be the biggest beneficiaries from a reduction in corporate taxes and regulations.

The Russell 2000 index, which is composed of small-cap stocks, has handily outperformed the S&P 500 since the election, gaining 16.7 percent since then.

Russell 2000 vs. S&P 500 since US election

Source: FactSet

However, Robert Pavlik, chief market strategist at Boston Private Wealth, said a lower corporate tax could entice companies to bring at least some of their overseas cash home. "That would mean more growth for the market," he said.