Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

Goldman Says Capital-Gains Tax Hike Would Be ‘Minor’ for Stocks

Published 10/26/2020, 03:24 AM
Updated 10/26/2020, 07:00 AM
© Reuters.  Goldman Says Capital-Gains Tax Hike Would Be ‘Minor’ for Stocks
GS
-
JPM
-

(Bloomberg) -- Any capital-gains tax increase resulting from a Democratic “Blue Wave” victory on Election Day is unlikely to have a big impact on stock prices, according to Goldman Sachs Group Inc (NYSE:GS).

If Democrats sweep the White House, Senate and House on Nov. 3, one concern for investors has been the chance of an increased tax on capital gains and resulting headwinds for stocks. But while past capital-gains tax hikes have been associated with declines in equity prices and in total household equity allocations, Goldman said, the trend of net equity selling and declining stock prices around them has usually been brief.

“History shows stock prices fall, equity allocations decline, and Momentum underperforms ahead of increases in the capital-gains tax rate,” strategists led by David Kostin wrote in an Oct. 23 note. “However, any potential equity selling will be short-lived and reversed in subsequent quarters.”

Goldman’s analysis dovetails with that of JPMorgan Chase (NYSE:JPM) & Co., which said recently that any hit to stock prices from a capital-gains tax hike would be brief, and stocks would likely resume their upward trajectory afterward. That offers a counter to strategists and wealthy investors already worrying about the potential tax hit to their portfolio -- or a decline in stock markets -- if a Blue Wave does occur.

Read more: Wealthy Investors Fear Big Biden Win Will Transform Portfolios

“We expect U.S. household equity allocations will rise in 2021 irrespective of the election outcome. Rising economic growth expectations should support higher equity allocations next year. Equity fund flows have also usually increased following presidential elections,” the strategists said. “Regardless of the election outcome, we expect roughly 10% upside to the S&P 500 by the middle of next year.”

©2020 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.