Uh-OH! Equity Investors Are Too Bullish

Uh-Oh!!! Equity investors might be missing a crucial issue. While equity prices are rising due to anticipated future profits, companies' tax payments to the US Treasury—a reliable measure of corporate profitability—are much lower than they were a year ago. I anticipated that the corporate tax payment on September 16 to add several billion to the monthly tally, but it added less than $2 billion. As a result, by mid-September, corporations have made quarter-end tax payments totaling $55 billion, compared to $102 billion for September 2024. The "Big Beautiful Bill" primarily extended many corporate tax provisions that were set to expire at the year's end, so the reduction in tax payments doesn't appear to be due to tax changes. Instead, it reflects a significantly lower level of corporate profitability.