The Latest from Joe Stango: My Take 10/26/2020

The latest from Joe Stango, reprinted with permission

Three items to watch out for this week which will cause the continuing volatility:

1. Election in site; as we are a little more than one week from the election the ever changing polls will continue to play its part in the causality of volatility
2. Increase Covid Cases; over the weekend Covid spiked all across the country. The concern markets will have is be how local and state governments will react. Are we in for more economic shutdown’s?
3. Lack of stimulus/relief package; with no consensus between Speaker Pelosi and the white house negotiators it is difficult to believe that we will have a bill before the election. Add this to the concern of tighter lockdown restrictions and you have a recipe for lower trending growth not to mention the continuing household financial and health stresses that will occur.

https://www.wsj.com/video/the-stock-market-is-ignoring-the-economy-here-why/353A01DC-4548-456B-BC07-CC278FC9EA21.html

Also, I have attached the final Ameriprise doc outlining differences in a potential sector impacts the two candidates may have as the next president (posted below.) Finally, I have attached a link to a Wall Street Journal short video (above.) I have been writing and speaking consistently of the growing disparity between Market Fundamentals and Market Valuations. WSJ did a great job of communicating to facts in the video. I hope both pieces help you to understand the vital concerns that face our country and are key factors in deciding who will be the next president.

Join me on Monday mornings at 10:10 AM on WATR’s Talk of the Town with host Steve Noxon. You can click www.watr.com to listen in.

Have a safe week!

Regards,
Joe

P.S. Are you ready to make the first step towards financial confidence? Take the 3-Minute Confident Retirement® check and share your results with me today.

Current administration
Lower corporate taxes — a centerpiece of the Trump administration’s policy agenda — were accomplished early in the term with the passage of the Tax Cut and Jobs Act of 2017. It lowered the statutory corporate tax rate from 35% to 21%, providing an immediate earnings boost to companies across the board.
The administration’s spending priorities resulted in higher defense expenditures, which benefited the aerospace and defense industries. A de-emphasis of environmental restrictions has, in certain instances, aided the Industrials sector. Fossil fuel companies have generally profited from less emphasis on alternative energy sources, vehicle mileage mandates and climate issues in general. Companies in the Information Technology sector, for example, also generally enjoyed a lighter regulatory approach.
For the Health Care sector, the administration’s policy has been a mixed bag. The Affordable Care Act has faced opposition, and prescription drug prices are under the threat of reform. Nevertheless, we find a number of attractive companies in the areas of medical technology, pharmaceuticals, biotechnology and insurers. In our view, the sector offers investment opportunities from a longer-term perspective, given aging societies globally.

Challenger administration
Former Vice President Biden’s proposed tax and spending priorities are quite different compared to those of the current administration. He proposes to roll back part of the current corporate tax cut by raising the statutory rate to 28%. While few companies actually pay taxes at that rate, aggregate corporate after-tax earnings could likely experience a modest decline, all else being equal.
In terms of spending, the presidential challenger has proposed $2 trillion in environmentally friendly infrastructure projects over four years. Passing the plan is dependent on a unified control of government instead of the current divided partisan control.
That said, the proposals may benefit a range of industries, including alternative energy producers such as wind, solar and biofuels. Conversely, fossil fuel companies could be relatively disadvantaged. Support for electric vehicle and battery manufacturers might simultaneously impact traditional vehicle manufacturers.
Construction and engineering companies might also benefit from infrastructure initiatives, while defense industries might experience a decline in spending priority.
Providers in the Health Care sector could benefit from the expected focus on medical services for children and older adults. And educators may benefit from the proposed universal preschool plan. Conversely, companies in the Information Technology sector may be subject to additional regulatory oversight.
Meaningful changes to the individual tax code have also been proposed. Mid- to low-income taxpayers might receive, for example, an expanded child and dependent care credit and enhanced tax breaks for 401(k) accounts.
However, the primary burden of tax proposals would fall on individuals earning more than $400,000. For those earning in excess of $1 million, changes to capital gains and dividend taxation could be meaningful. That may affect the spending patterns of those most directly affected, to the detriment of luxury goods manufacturers and other companies in the Consumer Discretionary sector, at least at the margin.

Support from an Ameriprise advisor
In summary, there are material, differing revenue and spending priorities for the two presidential candidates. Investors would be well served to begin thinking about the implications of possible changes to their tax and investment strategies. A conversation with your Ameriprise advisor will help you prepare should those changes become reality.