Displaying items by tag: election
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.
A lot of investors are worried about what will happen to stocks if Biden wins, and even more worryingly, if the Democrats sweep the election. The general fear is that without at least a Republican Senate, the Democrats could give in to their more leftist impulses and create policies which would be detrimental to the financial-economic paradigm. However, UBS argues that even if Biden hikes corporate taxes up to his planned 28%, he will offset that with big economic spending to accelerate the recovery, which should more than make up for the loss of profits because of taxes.
FINSUM: This makes pretty good sense. Even if taxes are raised, it is not like the Democrats are planning to balance the budget. Large amounts of deficit spending will likely help keep stocks afloat.
Here is an eye-opener for you: odds are that 7 months from today the SEC’s Reg BI and the new fiduciary rule will be no more. The Democrats—who are currently leading in the polls—have published an action plan for a potential Biden presidency. Included in it was a clear plan to reverse the current version of Reg BI, all according to a section of the report entitled “Guaranteeing a Secure and Dignified Retirement”. On page 24 of the document, Democrats say “Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first. We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing”.
FINSUM: Because of how polls are trending, these kind of manifestos are becoming very relevant for advisors to consider.
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.