The inventory market seems previous the turmoil in DC and continues to climb. Here is why
Traders work on the trading floor of the New York Stock Exchange.
Despite the chaos in the Capitol, the S&P 500 closed at a new high on Wednesday, confusing some observers.
“I think most of them feel that [the Washington protests] It’s more of a one-off situation that this is an isolated event as opposed to a larger movement and so we can look to the new government and incentives, “said Peter Tchir of Academy Securities.
“Look at the Russell 2000 small cap. It rose 4%. The Nasdaq 100 fell 1%. This is a sure sign that the market is looking for momentum and some changes in tax policy. The market is looking forward to Profit and growth down the street. “
Others agreed. “It’s a little difficult to balance the different forces in the game, but in the end it seems like the elections will carry the day,” said Jack Miller, head of commerce at Baird.
This transition to power comes with the belief that more momentum is coming: materials, energy, industry, and other cyclical factors that would benefit from the momentum rose by 2% to 4%. The banks were higher on a steeper yield curve.
“The reality we see in the markets [Wednesday] This is because the Fed doesn’t have to shoulder as much of the burden of tax aid and fiscal stimulus as it does, which is more effective in dealing with the aftermath of the crisis, filling the hole left by Covid and putting us on a stronger recovery path. “Diane Swonk of Grant Thornton said on CNBC.
Tech was down due to concerns about additional regulation and possible higher capital gains taxes.
What happened to the idea that Democrats who control the Senate would lead to higher taxes and lower stock prices? Right now, traders believe the economy will be too fragile for a broad tax hike.
There is one exception: capital gains. It is in technology because that is where the capital gains reside. For top earners (those who earn more than $ 496,000), the current capital gains are 20%. President-elect Joe Biden’s proposal would increase the long-term capital gains rate to 39.6%, but only for those making more than $ 1 million, although that is an essential part of the universe that owns stocks and most of them Capital gains are in the technical area.
Tchir notes that while increasing taxes on individuals can be controversial, increasing capital gains taxes on rich people will be far less controversial. I’m not sure the public will be upset about this.
He also said there might be some appetite for a modest increase in corporate tax rates, or at least a minimum corporate tax rate.
What’s next? “The Democrats sweeping the Georgia elections mean that momentum and the reflation trade and confidence in the economy will remain the main story,” said Alec Young, chief investment officer at Tactical Alpha. “We need clarity about Biden’s tax picture, but that won’t come anytime soon.”
Correction: Baird’s commercial manager is Jack Miller. An earlier version gave the wrong last name.