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A Foolish Take: Putting This Year's Stock Returns in Perspective

John Maxfield, The Motley Fool

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.

Bar chart showing annual returns on the S&P 500 since 2000.

Data source: NYU Stern School of Business. 2017 returns through Dec. 17, 2017. Chart by author.

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 such as Senators Bob Corker and Marco Rubio signaled their support for the bill last week, it seems possible, if not probable, that the legislation will be on the president's desk by the end of this week, 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.

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