The Week in Review: October 12, 2020
November Rain—Election Time
Winston Churchill once said, “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government, except for all those other forms that have been tried from time to time.”
Let me proudly acknowledge that the United States is the world’s wealthiest nation and is the leader of the free world. When disaster strikes around the globe, it is the U.S. and her citizens that generously offer aid.
Today, the U.S. faces tough choices at home and abroad. I am not a political or foreign affairs analyst. I’ll leave it to you to decide how these weighty issues might be addressed.
Our top priority is to be your financial advisor. Therefore, I will carefully and cautiously review the current contest through a very narrow prism—through the eyes of a dispassionate investor who doesn’t take sides.
The market owes no allegiance to a political party or creed. Longer term, the market focuses on the economic fundamentals, Federal Reserve policy, and corporate profits and losses. It rewards success. It punishes failure.
Conventional wisdom suggests that investors prefer Republicans, who typically support more pro-business policies, tax cuts, and less regulation. Yet stocks have historically performed well when either a Democrat or Republican is at the nation’s helm.
While a Democratic win may mean higher corporate taxes and new regulations, we might also see a lessening of trade tensions and new fiscal stimulus.
Between now, election day, and beyond, any number of headlines could swing market sentiment. Longer term, the economic fundamentals determine the direction of stocks.
An expanding economy fueled by innovation and entrepreneurship has been the biggest driver of stocks over the many decades. That doesn’t seem likely to change soon.
That said, let’s take a brief look at the Biden tax plan, as outlined by the Tax Foundation, which is an independent think tank founded in 1937.
The Biden plan would raise taxes by $3 trillion over the next decade. Components include:
The plan would increase the corporate tax rate from 21% to 28%.
It would raise the top tax bracket from 37% to 39.6%.
There would be a 12.4% increase in the Social Security tax on earned wages over $400,000, which would be evenly split between the employer and employee.
It would tax long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% on income above $1 million. Currently, the long-term capital gains and qualified dividends tax rate maxes at 20% (excluding the Medicare surtax).
There could also be an increase in estate tax rates, a reduction in the estate exemption, and a repeal of the basis step-up that heirs currently receive upon the donor’s death.
The points above are a brief outline, and much more is in his plan. A Biden win and a Democratic takeover of Congress would be needed to make significant changes in the law. If such an event occurs, taxes will likely go up, but details may change as his plan winds its way through Congress. If Republicans maintain the Senate, major changes are probably on hold.
If you have any questions or concerns, feel free to reach out to me, Will, or Tyler.
Two for the Road
The fourth quarter is usually the best-performing quarter for equities, being higher 79% of the time and, on average, up 3.9%. —Yahoo Finance, October 1, 2020
Bankrupt Chuck E. Cheese will spend $2.3 million to destroy 7 billion prize tickets. The chain says that destroying the tickets, which would fill 65 cargo-shipping containers, costs less than the $9 million that would have to be spent if they were redeemed for prizes. —Business Insider, September 16, 2020
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.