Wall Street Week Ahead: A Biden victory could weigh on stock market’s winners

In this news, we discuss the Wall Street Week Ahead: A Biden victory could weigh on stock market’s winners.

NEW YORK (Reuters) – Wall Street investors may add another layer of uncertainty to a market already pissed off by last month’s liquidation, stalled fiscal stimulus and President Donald Trump’s COVID-19 diagnosis, which has weighed on actions Friday.

A higher capital gains tax that could accompany a victory for Democratic presidential candidate Joe Biden is also emerging as a potential counterweight to this year’s powerful stock rally.

Biden proposed here to tax capital gains and dividends as ordinary income, which would lower the tax rate from 20% to 39.6% for individuals and couples earning more than $ 1 million. dollars, the highest tax bracket.

The policy – which would likely be easier to implement if Democrats also won the Senate and retained control of the House – could cause some investors to lock in gains before December if Biden emerges in the November 3 vote, said fund managers.

Tax-driven sales would likely be more pronounced in tech and other dynamic stocks and could push the overall S&P 500 down between November and year-end, said Eddie Perkin, director of equity investments at Eaton Vance.

“If you have enough people looking to reap some gains, it impacts the stocks that led the market, and the big tech stocks could be where people choose to sell at the end of the year,” did he declare.

President Trump’s COVID-19 diagnosis on Friday sparked a sell off in stocks and oil as investors moved away from risky assets. But many tech and dynamic stocks are posting solid gains for the year despite a massive selloff that pushed the S&P 500 down 3.9% in September, its first monthly loss since March.

Tesla Inc, for example, is up 436% for the year through Friday, while Zoom Video Communications Inc is up 610% and Amazon.com Inc is up 74%. The S&P 500 Index as a whole is up 3.8% over the same period.

This type of momentum can be difficult to slow down, especially if it is favored by seasonal trends. November and December tend to be among the best months for stock performance, with an average gain of 1.34% and 1.57%, respectively, for the S&P 500, according to research firm CFRA.

“The third quarter is usually weak, but when it’s really strong, like in 2020, that means the rally isn’t over yet,” said Ryan Detrick, chief financial market strategist at the LPL.

Still, some believe that a Biden victory would provide a strong incentive for profit taking.

SELL ‘BEFORE SCHEDULE’

Chris Cordaro, chief investment officer of RegentAtlantic, believes that a broad Democratic victory will likely lead to greater volatility in the stock markets once the election results are known, as investors start selling the winners.

He advised some clients to generate more income this year than in 2021, by withdrawing money from retirement accounts, which would add another layer of sales, he said.

“You’re going to see people selling things that they would sell anyway, but ahead of schedule,” he says.

Next week, investors will keep an eye on the minutes of the Federal Reserve’s latest monetary policy meeting, scheduled for Wednesday, to get a glimpse of how the central bank views the nascent recovery in the United States.

Higher taxes don’t always lead to increased sales. Overall, the capital gains tax rate could reach 40% before having widespread effects on investor behavior and discouraging investment, according to an article by economics professors at the Princeton University, Owen Zidar and Ole Agersnap.

Personal income tax rates are more likely to affect market winners this year, Cordaro said, while an increase in corporate tax would most likely cause stock market valuations to fall. over the next year.

However, by 2024, enactment of the tax measures and other policies proposed by Biden would reduce only 4% of the S&P 500’s estimated earnings from baseline estimates, according to Goldman Sachs.

Raising corporate taxes as the global economy continues to try to recover from the coronavirus pandemic could hamper the stock market rally and curtail companies’ plans to hire or invest in new projects while gnawing away net income after tax, stated

hedge fund manager J. Daniel Plants, who heads Voce Capital Management.

“History teaches us that this is the worst possible time to subject the economy to the kind of massive tax hikes Biden is proposing, especially the changes that would hamper capital formation and make domestic job creation less. attractive, ”he said.

Reporting by David Randall. Additional reports by Svea Herbst-Bayliss; Editing by Ira Iosebashvili, Nick Zieminski and David Gregorio

Original © Thomson Reuters

Originally posted 2020-10-03 00:46:11.

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