A Foolish Take: Putting this year's stock returns in perspective

CLOSE

European and Asian markets have offered a muted reception to the passage of U.S. tax cuts as benefits to company bottom lines were already baked into stock prices, while bonds were spooked by the blowout in government debt needed to fund the giveaways Newslook

Since the beginning of 2017, and with less than two weeks remaining in the year, the S&P 500 has climbed 19%.

How does this compare to past years? Pretty well.

The average annual performance of the S&P 500 since 1928 is 11.5%. The median comes in a little higher, at 13.9%. More recently, this year is fourth on the list of best performances since the beginning of the century.

Multiple catalysts have fueled stocks over the past 12 months. But far and away the most important one has been hope that Congress will lower the corporate income tax rate.

President Donald Trump vowed on the campaign trail last year to cut the corporate tax rate from 35% down to 15%. As the actual legislation has made its way through Congress, however, it's looking like the rate will be 21%.

After Republican holdouts signaled their support for the bill, it seems probable that the legislation will be signed by the president before the year is out, barring any intervening disruptions.

Why do lower taxes lead to higher stock prices? It's simple. If corporate taxes are dropped, corporations earn more money. And when corporations earn more money, they create more shareholder value, making investors willing to pay a higher price for their stocks.

More:A Foolish Take: Farmland is really expensive right now

More:A Foolish Take: Retailers lowered Black Friday discounts

More:Foolish Take: A contrarian view of bitcoin

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*

Tom and David just revealed their ten top stock picks for investors to buy right now.

Click here to get access to the full list!

*Stock Advisor returns as of Dec. 4, 2017.