Displaying items by tag: 2020
Advisors need to start thinking about what the post-election tax landscape might look like for clients, especially high earners. The proposed Biden/Democratic tax package is even more stringent than many think, as when you diver deeper it becomes clear that the increases are quite extensive. One core element that is less understood is Biden’s Social Security Payroll tax of 12.4%, which applies to all income with no cap (all income between $137,000 and $400,000 would be taxed at the same level). Combining that with a raised federal tax rate of 39.6%, and state taxes means that some residents of high tax states could see punitive-levels. For example, in California, which has a 13.3% top tax rate, the total tax burden for high earners would be over 65%! Even in states without state taxes, income taxes could be 52%. Furthermore, Biden intends to eliminate capital gains tax rates for those who earn more than $1m, effectively doubling the capital gains tax rate.
FINSUM: There is good news and bad news here. The bad news is obvious. The good news is that because of the state of the economy and the need for fiscal stimulus, Democrats are unlikely to pass these measure until we re-reach full employment, which could be years.
Many articles have been written about which stocks and sectors will do well or poorly if Trump or Biden wins/loses. Generally speaking, these articles are useful but repetitive. A more interesting idea is to look at the sectors/assets that will do well no matter who wins. With that in mind, here are a few ETFs poised to thrive when either candidate emerges victorious. One surprising area that should prosper in either scenario is clean energy. Biden plans to invest heavily in the area, but even if he does not win, this group of companies have finally become profitable. Couple that with rising pro-green public sentiment, and their long-term outlook is positive. Another area is infrastructure stocks. Both Biden and Trump have big infrastructure spending plans in their agenda ($1.3 tn vs $1 tn), so that appears to be a win-win.
FINSUM: Just as there are winners in either situation, there are also losers. Pharma, for instance, would be under attack in either presidency.
There are just under 100 days left until the election and there is a lot on the line for markets. The economic approaches of the Trump administration and the potential incoming Democrats could not be more different, which means there are huge implications for stocks. Here is the good news—over the last 40 years, markets have historically risen leading up to the election, and volatility has usually decreased. Now the big possible twist is the COVID pandemic, a major factor that has not occurred during an election cycle. The most comparable election cycle seems to be 1968, when the US was going through similar levels of social unrest. The S&P 500 gained more than 3% in the run up to that election.
FINSUM: As we see it, the two big risks are COVID (and its economic consequences), and a leftward move by Biden. The Fed will certainly soften the blow of the former, while the latter remains.
On Friday we ran an article covering which sectors and stocks would do well if the Republicans swept the election. Today we are doing the opposite side of that coin—the stocks that will win big if the Democrats sweep. Democrats are currently leading in the presidential poll and seem likely to keep ahold of the House, while the Senate looks like much more of a stretch. That said, if a sweep happens, infrastructure may be a key sector to surge as a large infrastructure bill would seem likely. Other sectors likely to gain are renewable energy, semiconductors, consumer staples, and oddly, gun stocks (since sales will likely surge on fears of regulation).
FINSUM: The infrastructure play seems like a good one, semiconductors also (like Western Digital). We still think a more likely scenario is a split Congress.
No matter which side of the aisle you are on, the last several weeks have not been great for the president’s reelection chances. While there are certainly a large portion of “silent” Trump supporters who will vote for him in November, the trends in the polls are not looking good. In particular, Trump seems to be losing ground in what is emerging as the biggest battleground of all—Florida. In 13 of the last 14 elections, the candidate who won Florida won the election. Based on how other key states are heading—Michigan, Ohio, Pennsylvania, Wisconsin—it seems like Trump must win Florida to take the election. One Republican strategist in Florida said the trends in the state were not good, concluding that “Obviously the triple whammy of the virus, the pandemic-induced weak economy and the social unrest have taken a toll on President Trump’s poll numbers”.
FINSUM: Trump has strong support in much of the Latino community, which should help him. But his polls numbers for the state’s key 65+ population have been weak, seemingly as a result of the virus, which is working against him.