Home Business News Investors suspect the US capital-raising tax plan alone could derail the market's...

Investors suspect the US capital-raising tax plan alone could derail the market’s rally.

© Reuters. A Wall Street sign is painted outside the New York Stock Exchange in New York

By Lewis Krauskopf

NEW YORK (Reuters) – US stocks rebounded on Friday from a day earlier as investors understood the impact of the planned capital increase tax hike, with multiple comments pointing to the reason at Why would such a policy not threaten the stock rally.

A gain of more than 1% in afternoon trading, offset losses from Thursday, as stocks fell after it was announced that President Joe Biden would be looking to nearly double the capital gains tax to 39.6% for wealthy individuals.

That would be the highest tax rate on investment income, paid mainly by the richest Americans, since the 1920s. This rate did not exceed 33.8% in the post-World War period period. two.

But investors have pointed to a variety of reasons why the market is likely to execute this proposal so quickly, including the limited effect such proposals have on past and period securities. Expect any bull run to be much lower than expected.

Analysts at UBS Global Wealth Management have found “no relationship” in history between the changes in capital interest rates and the performance of the stock market.

UBS analysts said in a report: “While we cannot rule out some modest stock market volatility when investors react to this proposition, we think it is. will be very short term ”.

Ryan Detrick, director of market strategy at LPL Financial (NASDAQ :), in the case of a previous capital increase, the key to the market response is the state of the broader economy.

Detrick notes: Six months of increase in 2013 and 1987, the S&P 500 was significantly higher, while six months after the rise in 1976 and 1969, the index was lower. This time, “the economy continues to recover faster than anyone thought” from the coronavirus pandemic, he said.

Meanwhile, economists at Goldman Sachs (NYSE 🙂 predict that the 28% “rate looks most viable, in our opinion, as it is almost half between the current and the proposed rate. Biden’s probable “.

Any price hike will need to pass Congress, where Biden’s Democratic Party has a narrow majority and is unlikely to win support from the Republican Party. It may require unanimous support from Senate Democrats, where each party holds 50 seats.

In the six months prior to the 2013 capital increase, investors withdrew $ 38 billion from U.S. investment funds and ETFs, according to Morningstar data analysis by Matthew Miskin, co-investment strategist at John Hancock Investment Management. . Over the next six months, such funds received $ 58 billion in inflows, according to Miskin, when the S&P 500 rose 18 percent during that 12-month period.

“It shows that investors have the potential to transform portfolios and miss out on an accelerating stock market and they would probably be better off just continuing,” Miskin said.

This time, Miskin said, stocks “could be due to a fall after such a strong rally, but in our opinion this is not the leading risk of the market derailing.”

Investors also say Biden has long announced its plans, so many market participants are probably already getting them ready.

While the prospect of higher taxes may be alarming, “the stock market has probably priced it,” says Detrick.



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