WILL THE FED COMMENT ABOUT POSSIBLE CHANGES TO THE TAX CODE?

Earlier last week I referenced IRS data stating that 65% of people earning over $500,000 were self-identified as Democrats.  Since Thursday’s proposal of increasing the capital gains tax to over 43%, I have observed a sharp change in Bloomberg news wire’s attitude towards the President.  Prior to last Thursday it appeared a default medium for financial information was unambiguously pro-Administration.

Yesterday the Administration proposed ending the “stepped up cost basis” on assets and the elimination of the carried interest loophole as well as the funding of pensions that are unfunded via various taxes on overfunded retirement accounts.  While the call for taxing unrealized capital gains has yet been proposed by the Administration, according to Bloomberg it is an idea that has been presented by several members of the President’s Party.

Some of the remarks on Bloomberg about these proposals were similar to the remarks that were formerly reserved for President Trump.

Wow!  Talk about velocity of change!!

While most believe the likelihood of passage of any of the above as slim, the President is proposing policies that many thought he would oppose believing Biden would govern as a moderate.  The next question will his support and ratings crater?

Increased taxes will impact earnings and according to Goldman Sachs if the Administration’s proposals become law, 2022 S & P 500 earnings may decline 8% to 10% which would then dictate lower valuations.

Today is the conclusion of a FOMC meeting.  Will the Committee comment about any of the proposed tax policies?   Little change is expected in monetary policy.

Commenting about earnings, of the 149 S & P 500 companies 87% beat analysts’ estimates.  Revenues have exceeded 65% of the time.  The mega sized technology has been a mixed bag.  Expectations and valuations are lofty thus shares have struggled.

What will happen today?

Last night the foreign markets were up.  London was up 0.51%, Paris up 0.62% and Frankfurt up 0.40%.  China was up 0.42%, Japan up 0.21% and Hang Seng up 0.45%.

The Dow should open mixed ahead of the Fed meeting, top tier data and earnings releases.  A new variable that is entering into the discussion is the impact of the President’s tax plans.   The 10-year is off 5/32 to yield 1.65%.

 

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