The possible victory of the Democratic Party nominee, Joe Biden could lead Wall Street investors to sell the shares they own from America’s largest technology companies. This scenario threatens to affect the market of the North American country, which has already suffered several sharp declines during 2020.
Usually, November and December tend to be better than the rest of the year, as stocks tend to outperform. The average profit for the S&P 500 stock index ranges from 1.34% to 1.57%, according to research firm CFRA.
However, Biden’s possible victory in the presidential election threatens to spoil the party for US tech companies. If the Democratic Party candidate succeeds in defeating Trump in the November 3 election, he will be able to keep his promise and raise the capital gains tax.
In particular, Biden proposes to tax capital gains and dividends in the same way as it is now done on ordinary income. The approval of this measure would increase the tax rate from 20% to 39.6% for the self-employed and cooperatives that earn more than $ 1 million.
Such an economic policy may push some investors to withdraw their capital before December 2020 in the event that the Democrat comes out as the winner of the vote, experts interviewed by Reuters warned.
The sale of assets that can be triggered by the introduction of the new taxes would probably be more pronounced in the tech sector. As a consequence, between November and the end of 2020 the S&P 500 index would go down, said Eddie Perkin, one of the executives of the investment firm Eaton Vance.
“Having enough people looking to reap a profit has an impact on the stocks [of companies] that have led the market, and the assets of big tech companies could be the ones that people choose to sell at the end of the year,” he suggested.
Biden’s tax measure threatens companies’ plans to hire or invest in new projects, as it will inevitably cause their net income to decline, said J. Daniel Plants, manager of hedge funds at Voce Capital Management.
“History teaches us that this is the worst possible moment to subject the economy to the type of massive tax increases that Biden is proposing, especially the changes that would impede capital formation and make domestic job creation less attractive,” he asserted.
However, despite these warnings, Goldman Sachs analysts estimated that by 2024 Biden’s tax measures and other proposals could cost the S&P 500 only 4% of the revenue forecast for this stock index.
Still, many US tech companies are feeling good because they are posting good profits on a yearly basis. And despite the recent withdrawal of investors from Wall Street in September caused the S&P 500 to plummet by 3.9%. As an example, so far this year Tesla went up by 436%, while Zoom and Amazon did it by 610% and 74% respectively.