Transcript:
Hello, everybody, welcome to Thursday, the S&P 500 was down about .9% today, but it did it in fairly spectacular fashion. So let me share my screen and I can kind of talk to you about, you know what happened today and what the main catalyst was. So this is a chart just showing the minute by minute movement of the S&P 500 for the last few days, and so you can see it yesterday was a good day, nice upward movement, you know, today again, got to an even higher high. And then right at this point, Bloomberg released an article talking about the Biden Administration’s plans to possibly increase capital gains rates on those making over a million dollars from the current rate of 20%, to a possible high of 39.6%. So almost doubling it for that group over a million dollars. And you can see it came down quite drastically, and then finally stabilized later on in the day. But this is kind of an interesting thing.
First of all, it’s a little bit surprising, since this has been on the platform really, probably since this time last year. So it’s not new news, as far as that goes, but the reality of it, they’re now working on this American families plan, which has free college, for Community College, paid, family leave those types of things. And so what is the impact to the stock market? Okay, I’ll try to bottom line number one, when they have these types of increases, they usually announce some period of time when it’s going to start. And so let’s say it’s the end of the year, beginning of next year, will between and that probably won’t pass until the fall, to be honest. And so then there’s this small, small window where everybody who has more than a million dollars worth of income, or is going to sell a house or a business that would create more than a million dollars in income might be encouraged to do so. And so in the past, when we’ve seen these, we have seen drop downs in the market, as everybody’s kind of selling to get that lower rate until it goes before it goes higher. Again, this has some limited impact, because it’s only over a million dollars. And so that’s a fairly unique situation. It’s a real, relatively limited situation to a certain degree. So in the past, though, when we have seen these across the blanket increases in capital gains, it’s been very short term, it usually comes back very quickly.
Then the other aspect, just historically, the capital gains rates are higher versus lower, when the stock market actually does quite well, in either environment, there is not a very strong correlation to poor performance. Just because capital gains rates are higher, that has not been true in the past, I do not think that will be true here either. The other thing to consider with this is that it is attached to a government spending program. So there may be some increased taxation that comes off, that may create some problems. But there is going to be some spending that comes out from this American families plan. If it does get passed, I guess the other piece to consider is that it’s very difficult to get these things through the American jobs plan, which they announced last month, really talking about raising corporate taxes from 21% to 28%.
Now we’re starting to hear that they might only be able to get it to 25%. So again, the talk about what the taxes and the reality what it is, can be two totally different things. So we’ll have to wait and see what happens there. And again, I think that this is somewhat limited because it is only affecting a certain group, and that’s above a million dollars in this particular case. It is not a broad based capital gains tax, which is what we’re used to, which is what we normally see is across every income strata. This is just one I think this is going to limit it. You can see that the market reacted negatively. There’s obviously some concerns there. But I wouldn’t be surprised to see things kind of bounce back fairly quickly, actually from that news. So let’s see what happens tomorrow. Look forward to seeing you then. Thank you.