AN EQUITY REBOUND AND OBSERVATIONS SURROUNDING SALT

Equities led by companies that stand to benefit the most from an economic revival rebounded.  Similar to the prior two days, there was no specific catalyst.

Many times, I have commented Main Street may outperform Wall Street as the economy is expected to expand by the greatest rate since at least 1984.  Yesterday Bloomberg offered further evidence to support this view.

According to the Newswire, the Russell 2000’s (i.e. Main Street) revenue is expected to grow by 8.7% for the period beating the S & P 500 by 226 basis points.  The cyclical sectors—led by energy, financial and raw material companies—are expected to drive this growth, expanding by double digits.

Wow!  This is a massive change from the last five years.

Radically changing topics, The Biden Administration is proposing the greatest tax increase in at least two generations.

All may soon find out as to how committed affluent left of center voters are to the Democratic agenda given that about 65% of people making over $500,000 are self-identified as Democrats according to the IRS.   The proposed tax increases for this cadre is unprecedented according to Bloomberg.

The President’s proposed plan is receiving pushback from its own party unless SALT limitations are reversed, an agenda item the Administration does not support as SALT is instrumental to help fund the Administration’s massive spending plans. As proposed, if there are two Democratic defections in the House, the President’s plans will not pass.

For example, according to IRS data a Democratic Silicon Valley district lost an average of $73,808 worth of deductions because of SALT and Representative Eshoo will only support Biden’s tax plan if SALT is repealed.  In wealthy Democratic districts of San Francisco, Connecticut, New Jersey and New York as well as other high cost/tax areas, similar pressure is being placed upon their legislative representatives.

It is estimated the repeal of the SALT cap would only flow to the top 5% of households according to the Tax Policy Center.

If the debate about SALT is an indicator, affluent support for Biden’s tax and spend policies is perhaps only skin deep.

I will skip the editorializing about this observation but will write most polls indicate support for greater federal spending.  When asked however how and who will pay for this spending, the level of support declines significantly.

There is little debate the Biden Administration is espousing the greatest growth of government since the New Deal, an agenda that has the potential to greatly transform the economy and society.  If passed, the outcome will impact the markets.

What will happen today?

Last night the foreign markets were up.  London was up 0.07%, Paris up 0.64% and Frankfurt up 0.43%.  China was down 0.23%, Japan up 2.38% and Hang Seng up 0.47%.

The Dow should open flat ahead of several earnings reports and economic data. The 10-year is off 1/32 to yield 1.57%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.