[ad_1]
Watch Fox Business Network live streaming on the web.
The record-breaking stock market that President-elect Joe Biden will inherit from President Trump is in danger of selling after inauguration day, Wall Street strategists say.
Tax hikes and a sharply improving economy leading to higher interest rates are concerns that could become driving forces for markets later this year.
BIDEN DOLLAR TRILLION SPENDING MAY RESET INFLATION MISSING SINCE 2008 CRISIS
“Likely post-groundbreaking correction on edge policy, earnings and positioning,” wrote Michael Harnett, chief investment strategist at Bank of America.
The S&P 500 rose at an annualized rate of 13.73%, or 67.26%, during Trump’s tenure, the index’s third annualized gain under a president, as investors celebrated tax cuts and the decline in regulations. The benchmark, which set 150 records under Trump, ended 0.6% below its all-time high on Tuesday, the last full trading day of his tenure.
The Nasdaq Composite Index, meanwhile, posted an annualized return of 24.17%, the largest under a president since trading began in 1971 under the Nixon administration. The High Tech Index set 183 records in Trump’s four years in the White House.
“The markets are priced to perfection,” said Greg Valliere, chief US policy strategist at AGF Investments, a Toronto-based company with $ 38.8 billion in assets.
Biden pledged to raise top corporate tax rate to 28% from 21%. The rate was lowered as part of Trump’s Tax Cuts and Jobs Act, which also encouraged U.S. companies to bring in $ 1 trillion in cash abroad.
GET FOX BUSINESS ON THE ROAD BY CLICKING HERE
Other tax changes being considered include increasing the top tax rate on capital gains and dividends to 43%, from 24%, and increasing income tax for higher income.
In addition to higher taxes, investors must grapple with the implications that a hot U.S. economy will have on interest rates.
Goldman Sachs economists predict that U.S. gross domestic product will grow at an annual rate of 5% in the first quarter of 2021 and at a rate of 5.8% for the year, boosted by the recently approved COVID-19 relief program of 900 billion dollars. The economy could grow at an even faster rate if Congress passes Biden’s $ 1.9 trillion package last week.
A model from the Federal Reserve Bank of Atlanta that takes recent economic data into account shows that the economy likely grew at an annualized rate of 7.4% in the fourth quarter of last year, after increasing at a A record pace of 33.4% in the third quarter, as businesses began to reopen after COVID-19 lockdowns.
Stock market braces for regime change amid WASHINGTON POWER SHIFT: GUNDLACH
The enthusiasm surrounding the economic recovery caused some nervousness in the bond market where the sale of US Treasuries pushed the 10-year yield up 0.515% on August 4 to X% on Tuesday. The rally came despite the Federal Reserve reiterating its promise to keep interest rates close to zero until at least 2023.
Valliere said he “wouldn’t be shocked” to see the 10-year return hit 1.5% by the summer and warns that the yield approaching 2% would be a “concern for the stock market,” which saw a relentless bid fueled by the Fed’s promise to keep rates low and talk additional fiscal stimulus from Congress.
The S&P 500 price-to-earnings ratio is currently trading at 27.4 from its historic average of 17.6 going back to 2000, according to Dow Jones Market Data.
The options market “points to even higher prices,” said Anthony Saliba, CEO of Chicago-based Matrix Execution Group, an options and stocks execution broker. “There is more demand for calls than there is supply.“
CLICK HERE TO LEARN MORE ABOUT FOX BUSINESS
The preference of owning calls over puts indicates that investors are choosing not to buy protection, which is usually done to guard against a downward movement.
Saliba, who has been betting against the market for the week following the election while also trading positions, admits there is no indication of an imminent stock market reversal, but he is still looking for a sudden movement lower.
“I think you pulled off the inauguration, you see the infighting between the Democratic Party and then I think people say, ‘Maybe I better take a profit,’” Saliba said.
[ad_2]
Source link