Will A Higher Ten Year Yield Cause A Decline In Stocks?

Where Will The Money Go?

We are within 1-2 weeks of seeing where the stimulus money will go. 90 million stimulus checks have gone out so far. We don’t have access to up to the minute spending data. We have been saying the money will go to the real economy. That means it will be spent at restaurants, on clothes, and on vacations. Of course, someone can save the money for a few weeks/months and then spend it on those things later on when the economy is back to normal.

As you can see, those making less than $30,000 per year plan to spend 47% of the stimulus check. For this group, saving the money quickly becomes spending it because they are struggling to get by. It’s no surprise those making more money have a higher propensity to save and invest. We could already be seeing the stimulus’ impact on the stock market now. Those who got the money may have already invested it.

Tax Hikes Coming?

It appears the Biden administration doesn’t adhere to the more extreme versions of modern monetary theory. It plans to raise taxes to pay for the stimulus. Some economists don’t believe that’s necessary. Others say raising taxes next year would be too soon because the pandemic recession just ended. We disagree with that notion because in 2022 the economy should largely be back to normal.

The Bloomberg screengrab below shows the outline for the proposal.

It’s in the works now which means it will probably be many months before it passes. It won’t affect 2021 taxes, but it will impact markets this year. As you can see, the corporate tax rate could increase 7 points to 28%. The income tax on those earning more than $400,000 will increase. Finally, the capital gains tax on those with over $1 million in income will increase. There probably will be a long term shift away from corporate profits and towards the working class. There is strong political will to help the middle class and poor at the expense of corporations. This will lower margins and compress valuations. This plan probably won’t do that much damage, but it could easily be the first of many.

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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