Surprise from Biden, Republicans and ECB Plan

23 apr 2021

Yesterday, Biden unpleasantly surprised buyers in the US stock market. But did he somehow deviate from his general line? Rather, on the contrary, he simply clarified its details and acted exclusively in the logic of his plans. We are talking about a tax on capital, which is planned to be drastically increased (almost doubled). The current rate is 20%, and Biden is proposing to raise it to 39.6%. Taking into account the additional tax of 3.8%, in total, according to the results of the reform, investors may find themselves with a burden of 43.4%.

Immediately, we note that we are talking about income from a million and more, but still this can radically change the attitude of investors towards the US stock market. The tax rate will apply to gains on assets sold after more than a year. Accordingly, if the markets believe in the reality of this plan and its early implementation, we may well face a wave of sales when investors get rid of assets that have been sitting in for up to a year. In general, the profit/risk balance for investors is radically changing. In fact, the profit is cut in half. But the risks only grow as the US stock market grows. In general, the news is quite pulling on the needle that will burst the bubble in the market.

Another relatively pessimistic piece of news is the infrastructure plan from the Republicans. Its size is 4 times smaller than the one proposed by Biden and reminds the markets not to sell the skin till one has caught the bear.

The European Central Bank, as expected, left the monetary policy parameters unchanged. But at the same time, the Central Bank noted the high likelihood of a confident recovery in the Eurozone economy this year. And if so, then there is reason to expect a revision of the vector of monetary policy already at the June meeting of the ECB (we are talking about reducing the volume of the asset repurchase program).