In a research report released on Friday, Goldman Sachs says that the “passage of tax reform in December 2017 caused the strongest surge of S&P 500 earnings revisions on record,” but the reduction in the tax rate was largely a “one-time benefit” in terms of earnings growth.
Goldman analysts are focused now on competitive pressures and rising costs for labor and materials that threaten to erode profit margins.
“As the margin tailwind from tax reform passes, firms with the ability to sustain or grow profit margins will become increasingly scarce and should be rewarded by investors,” Goldman said.
Companies that can’t defend their margins are likely to lose both their tax cut windfall and investors’ favor.
