Ken Fisher has a message for investors who think tax cuts automatically boost stocks: “Everybody thinks this, but I show you it’s really not like that in the marketplace of stocks or bonds or capital markets.” In his latest Debunkery chapter, Fisher tackles Bunk #36—the persistent belief that “Stocks Love Lower Taxes”—with data stretching back to 1925.
“It is easy to see why people believe that,” he admits. “You got an army of people in the world saying ‘lower taxes are good.'” But Fisher’s research reveals a stark reality: “You can’t find any tax moves of any type that show any consistent trend of subsequent reaction to the market after tax hikes and cuts of all federal.” Why? “These things are baked into stock pricing before we ever get to the point that they’re actually enacted in law.”
Fisher dismantles the logic step by step. Take capital gains taxes: “What is a capital gains tax? It’s a tax on selling an appreciated stock.” Counterintuitively, “when you cut capital gains tax, you tend to get more selling. What does more selling do? It puts some downward pressure on stock prices.” The relationship between taxes and markets isn’t linear—it’s about expectations. “Stock prices set expectations in advance and are priced in. And then that subsequent reality doesn’t have much impact.”
He challenges investors to think critically: “When people tell you X causes Y in, let’s say, the stock market, the first thing I always think of is do we have a lot of X’s in history?” With nearly a century of data, Fisher’s conclusion is frank: “There’s no evidence in the vernacular of Gertrude Stein that there’s a there there at all in terms of stock market effect.”
Fisher knows his findings clash with dogma: “I know you want to believe, ‘Tax hikes bad, tax cuts good.’ And that might be true in the main street real world. But in terms of stock prices, stock prices set expectations in advance and are priced in.”
His advice? Focus on what’s measurable—not political narratives. “We have a very long history of federal tax hikes and cuts of all types. We can measure them precisely… and there’s no subsequent measurable result that’s different than normal.”
For Fisher, the lesson is clear: “Stocks are always about expectations versus subsequent realities.” Investors clinging to tax-cut euphoria may be in for a surprise.
You can watch the entire presentation here:
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