A wave of new technologies led by robotics and artificial intelligence; the opening up of China’s equity markets, with all that country’s vast potential, to global investor; recovery of global trade; or a boom in mergers and acquisitions as companies revive their appetite for dealmaking – there are plenty of forces which could give this bull market fresh impetus, drive equities higher throughout 2017, and make it one of the longest upturns in stock prices since records began.

But here is one that few people have noticed: corporate tax cuts. On Wall Street, the “Trump Bump”, to use the term traders have latched upon for the way Wall Street surged ahead since Donald Trump found his way into the White House, has been largely driven by his promise to reform the United States’ crazily high corporate taxes.

But it is not just the US that is cutting the amount companies have to pay. In this country, corporation tax is being driven down to historic lows; the Swiss are cutting canton by canton; and the Japanese have already started edging rates down.

As corporate taxes are reduced around the world, some of that money will go to staff in higher wages, some to consumers in lower prices. But in the first instance, it will translate into higher profits and dividends, and that is inevitably going to push every major index upwards.

In the run-up to the US presidential election, it was widely assumed that the steady, experienced, if slightly dull Hillary Clinton would usher in a rally on Wall Street, while the wild, unpredictable, protectionist Trump would trigger a wave of panic selling. As it happened, much like Britain’s vote to leave the European Union back in the summer, it did not work out like that.

Instead, after initial nervousness, the main markets are all up strongly. The S&P 500 slumped to 1,800 after the election, but has since bounced back to 2,200, while the Dow has broken through its all-time high and is closing on the 20,000 barrier.

The explanation? Trump turned out not to be quite as completely unhinged as he sometimes appeared on the campaign trail, and he has assembled an economic team with plenty of Wall Street experience. But one of the main reasons has been his pledge to significantly reduce the rate of corporation tax.

At 39pc, once state and federal taxes are combined, the US has one of the highest corporate rates in the world – only the United Arab Emirates and Chad take more from businesses. It was so high that companies were starting to move abroad.

Clinton’s only answer to that was to impose heavy “exit taxes” on anyone impudent enough to leave – the kind of thing the East German Politburo might have come up with on a bad day. Trump by contrast has promised to dramatically slash it, taking it all the way down to 15pc. Whether he can get that through Congress remains to be seen. But there can be little doubt the bill is going to come down significantly.

David Fuller's view

This is a very upbeat article by Matthew Lynn, as he extrapolates the initial response to President-elect Trump’s plans for a bold programme of economic stimulus led by dramatic cuts in corporate taxes.  Markets also like the Wall Street leaders who will be Trump’s advisors. 

This is not just a relief rally.  Trump’s tax cuts alone will provide a considerable boost for corporate earnings next year, turning Wall Street valuations from somewhat expensive to good value.  Some of that extra capital will channelled into corporate development, share buybacks and dividend increases.  

Moreover, significant new economic policies in the USA frequently have an international influence.  Other countries are already talking about similar measures to jumpstart revivals of economic growth in their own countries. 

Groupthink forecasts of minimal GDP growth in a global disinflationary / deflationary environment are being reassessed, and rightly so.  I would not underestimate this move, at least not while leading US indices such as the S&P 500 Index remain comfortably above their early-November reaction lows. 

I would also keep an eye on US 10-Yr Treasury Bond yields, which I maintain saw a final low in early July.  The subsequent rally has actually helped the stock market as some of the profits taken in bonds have been used to increase equity weightings.  This switch will most likely continue but above 3%, 10-year bonds will start to look more attractive to some fixed interest investors.  Above 4% they will most likely represent a headwind for shares.    

Here is a PDF of Matthew Lynn's article.