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Trump or Biden, S&P 500 ETFs Are Set to Soar in 2021
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Chances are rising that the blue wave of Democrats will take control over the House and Senate in November. Democratic presidential candidate Joe Biden now has better chances of winning the November election, according to a national poll. President Trump presently has a 40% chance of winning the White House compared with about 50% in May.
Biden’s winning may mean a partial rollback of President Trump’s Tax Cuts and Jobs Act. Notably, President Trump’s tax law lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation reveals that Biden’s plan is to hike the corporate tax rate to 28%. Biden is also proposing to levy a minimum tax rate of 15%, a potentially damaging outcome for some major companies that pay little in taxes (read: Blue Wave to Hit America? Sector ETFs to Win or Lose).
The Tax Cuts and Jobs Act of 2017 has lowered the effective tax rate of S&P 500 companies by 8 percentage points to 19% and boosted S&P 500 earnings by 10%, according to Goldman’s Kostin. As a result, many analysts were initially considering Biden’s election to be detrimental to market rally as opposed to that of Trump. But in reality, Wall Street and the S&P 500 should continue to remain strong no matter who wins the election. Let’s tell you why?
Both Biden & Trump Will Try to Keep Economy & Markets Charged Up
It all depends on which party rules the Senate. If there is a divided Congress, Biden may not be able to enact an outright tax hike. Moreover, if elected, Biden’s primary objective will be to pull the economy out of the virus-led slowdown. So, policies that sound extremely harsh may not be implemented next year.
“Given the current economic weakness, business recovery and job growth are likely to be prioritized over policies that could dampen economic growth and perhaps even jeopardize the desired 2022 midterm election outcome. As such, the degree of corporate tax reversal may ultimately be lower than currently discussed,” said JPMorgan Chief U.S. Equity Strategist Dubravko Lakos-Bujas in a recent note.” J.P. Morgan sees Biden’s winning as neutral to slightly positive for the markets.
Infrastructure Spending to Get a Boost Both Under Trump & Biden
Joe Biden proposed a $1.3 trillion infrastructure overhaul last year. Though he said he will fund the plan through tax increases on the wealthy and corporations, we see moderate increases in both tax rates as well as infrastructure activities under Biden’s rule.
Meanwhile, the Trump administration is also reportedly preparing a nearly $1 trillion infrastructure plan as part of its efforts to bolster the American economy. The Department of Transportation's preliminary version takes care of most of the funding for projects such as roads and bridges, but also keeps money for 5G wireless infrastructure and rural broadband (read: A New $1T US Infrastructure Bill on the Way? ETF & Stock Picks).
Tariff War to Soften Under Biden’s Rule
President Trump and his trade and tariff war with China and many other parts of the globe like Europe and Japan are known to all. The trade war with China in fact reached a heightened level. Though the phase-one U.S.-Sino deal was signed in January, a full-fledged truce is yet to be seen. Additionally, the NAFTA deal between U.S.-Mexico-Canada has also been re-written under his regime. Such extreme trade tensions will likely be absent under Biden’s presidency.
Federal Minimum Wage to be Hiked under Democratic Control?
The federal minimum wage has remained at $7.25 an hour since 2009, although some states have higher minimums. House Democrats in July passed the Raise the Wage Act, which would phase it up to $15 by 2025, but the plan was dissolved in the Senate as Republicans argued that higher minimum labor costs may lead to lower hiring of workers.
Whatever the case, Democrats’ demand shows that serious efforts to rev up minimum wage would be in the cards if there is a sweeping victory. This in turn may lead to greater buying power among consumers, which may end up boosting the economy as well as investor sentiments.
Image: Bigstock
Trump or Biden, S&P 500 ETFs Are Set to Soar in 2021
Chances are rising that the blue wave of Democrats will take control over the House and Senate in November. Democratic presidential candidate Joe Biden now has better chances of winning the November election, according to a national poll. President Trump presently has a 40% chance of winning the White House compared with about 50% in May.
Biden’s winning may mean a partial rollback of President Trump’s Tax Cuts and Jobs Act. Notably, President Trump’s tax law lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation reveals that Biden’s plan is to hike the corporate tax rate to 28%. Biden is also proposing to levy a minimum tax rate of 15%, a potentially damaging outcome for some major companies that pay little in taxes (read: Blue Wave to Hit America? Sector ETFs to Win or Lose).
The Tax Cuts and Jobs Act of 2017 has lowered the effective tax rate of S&P 500 companies by 8 percentage points to 19% and boosted S&P 500 earnings by 10%, according to Goldman’s Kostin. As a result, many analysts were initially considering Biden’s election to be detrimental to market rally as opposed to that of Trump. But in reality, Wall Street and the S&P 500 should continue to remain strong no matter who wins the election. Let’s tell you why?
Both Biden & Trump Will Try to Keep Economy & Markets Charged Up
It all depends on which party rules the Senate. If there is a divided Congress, Biden may not be able to enact an outright tax hike. Moreover, if elected, Biden’s primary objective will be to pull the economy out of the virus-led slowdown. So, policies that sound extremely harsh may not be implemented next year.
“Given the current economic weakness, business recovery and job growth are likely to be prioritized over policies that could dampen economic growth and perhaps even jeopardize the desired 2022 midterm election outcome. As such, the degree of corporate tax reversal may ultimately be lower than currently discussed,” said JPMorgan Chief U.S. Equity Strategist Dubravko Lakos-Bujas in a recent note.” J.P. Morgan sees Biden’s winning as neutral to slightly positive for the markets.
Infrastructure Spending to Get a Boost Both Under Trump & Biden
Joe Biden proposed a $1.3 trillion infrastructure overhaul last year. Though he said he will fund the plan through tax increases on the wealthy and corporations, we see moderate increases in both tax rates as well as infrastructure activities under Biden’s rule.
Meanwhile, the Trump administration is also reportedly preparing a nearly $1 trillion infrastructure plan as part of its efforts to bolster the American economy. The Department of Transportation's preliminary version takes care of most of the funding for projects such as roads and bridges, but also keeps money for 5G wireless infrastructure and rural broadband (read: A New $1T US Infrastructure Bill on the Way? ETF & Stock Picks).
Tariff War to Soften Under Biden’s Rule
President Trump and his trade and tariff war with China and many other parts of the globe like Europe and Japan are known to all. The trade war with China in fact reached a heightened level. Though the phase-one U.S.-Sino deal was signed in January, a full-fledged truce is yet to be seen. Additionally, the NAFTA deal between U.S.-Mexico-Canada has also been re-written under his regime. Such extreme trade tensions will likely be absent under Biden’s presidency.
Federal Minimum Wage to be Hiked under Democratic Control?
The federal minimum wage has remained at $7.25 an hour since 2009, although some states have higher minimums. House Democrats in July passed the Raise the Wage Act, which would phase it up to $15 by 2025, but the plan was dissolved in the Senate as Republicans argued that higher minimum labor costs may lead to lower hiring of workers.
Whatever the case, Democrats’ demand shows that serious efforts to rev up minimum wage would be in the cards if there is a sweeping victory. This in turn may lead to greater buying power among consumers, which may end up boosting the economy as well as investor sentiments.
S&P 500 ETFs to Rule Ahead
Considering this backdrop, we believe that the broader market and S&P 500 ETFs like iShares Core S&P 500 ETF IVV), Vanguard S&P 500 ETF (VOO - Free Report) , SPDR SP 500 ETF (SPY - Free Report) and Invesco SP 500 Equal Weight ETF (RSP - Free Report) will remain steady in the medium term (read: S&P 500's Best Q2 Ever: Stock & ETF Winners).
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