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Can a compressed economy impose a higher tax on investors in the stock market?


Markets are still digesting the prospect of higher tariffs, with some strategists arguing that pent-up demand in the economy could help offset any damage that the surge will cause. for stocks.

According to David Kelly, global strategy director at JPMorgan Chase & Co.’s asset management unit, higher tax risks next year are growing – and it’s “hard to argue” that markets already have. pre-assess this challenge for investors. In a note on Monday, Kelly cited President Joe Biden’s proposal to raise corporate tax rates to 28% from 21% to help fund his infrastructure plans, as well as impose the global minimum corporate tax rate is 21%.

Tim Murray, capital market strategist for T. Rowe Price Group Inc.’s multi-asset division, told MarketWatch in a phone interview on Monday: “It’s becoming something in the minds of investors. He said great growth and technology stocks
COMP,
-0.36%

prized capital will be hit hardest as they face potentially higher taxes on their foreign revenues.

According to a research report last month from Goldman Sachs Group Inc., several IT companies in the S&P 500 index
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-0.02%

vulnerable to Biden’s tax plan proposal because of their large foreign income and relatively low effective tax seen for 2022. Microchip Technology Inc.
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-1.83%
,
Seagate Technology
STX,
-0.77%

and Nvidia Corp.
NVDA,
+ 5.62%

among them, Goldman’s report, March 19, shows.


“Like Willie Sutton once robbed banks ‘because that’s where the money is,’ governments are looking at these big, very successful multinationals because that’s where the money is …”


– James Solloway, SIX

James Solloway, chief market officer, said major tech companies have lowered their effective tax rates in part by shifting “recorded revenue” to low-tax jurisdictions. SEI’s investment management strategist, in a phone interview on Monday. Solloway references The bank robber is late Willie Sutton emphasizes why such companies are in the sights of governments.

“Like Willie Sutton used to rob banks because that’s where the money is,” governments are now looking at these large, very successful multinationals, because that’s where the money is today, “Solloway said. MarketWatch.

Read: This is what a tax increase means for the stock market as Biden pushes on infrastructure plans

As noted by Mr. Kelly, a “realistic” outlook on higher inflation and higher taxes in the short term threatens return on equity, especially in overvalued stocks.

“In the short term, investors need to realize the potential for some word difficulties higher inflation and higher taxes, ”he said. “It is more likely that the law that increases both the corporate income tax rate and the capital income tax for these households will be passed before the end of this year.”

Solloway hopes the tax law won’t cover everything the Biden administration wants.

“The tax issue is also a very important issue, but you have to be careful not to put too much weight at the moment,” he said. “We don’t know what will be passed.”

Also, it’s unclear exactly who will pay for the higher corporate tax rates, Solloway added, which will depend in part on how strong demand for the company’s products is.

“If a company is selling something people really want, the price goes up to reflect the added cost of doing business due to higher taxes,” Solloway said. “But if you’re in an extremely competitive industry, you might be forced to swallow that higher cost into your own margins.”

Read: Stocks fall to initiate earnings week with banks and focus on risk

Murray hopes an economic recovery from the pandemic generally “outweighs” the profit drop due to the tax increase. He points out “pent up demand” after consumers have saved more than usual when they were at home due to COVID and government stimulus – key drivers in the market.

“We think it will continue to surprise opposite, Murray said.

Meanwhile, the strong rebound of stocks
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It’s been over a year that has made pricing “an issue,” says Solloway. He said his concern about prolonged pricing would increase if the Federal Reserve changed the “rhetoric” around its proper monetary policy, or said, “if we keep rising. Property prices “over the next few quarters.

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