Think About This
INVESTMENT RESEARCH
WILL DEMOCRATS WIN THE WHITE HOUSE , SENATE AND HOUSE IN 2020 ?
$ 0.65 50,000
$ 0.60 40,000
$ 0.55 30,000
$ 0.50 20,000
$ 0.45 10,000
$ 0.40 11-Jul 25-Jul 8-Aug 22-Aug 5-Sep 19-Sep 3-Oct
0
Volume Price Sources : Bloomberg , Deltec
This leaves the most likely route to more stimulus as ‘ A Blue Wave ’ after the inauguration next year . If the Democrats control the White House and Congress spending can be truly profligate . We have always encouraged our clients and partners not to fear a Biden victory and to focus on the power of the status quo . Maximum monetisation and flowing fiscal stimulus continue whoever sits in the White House .
However , we think the recent excitement about stimulus triggered by a ‘ Blue Wave ’ has gone too far . Firstly , if the Democrats don ' t take the Senate partisan wrangling will continue . Even if they do spending will be delayed by the lame duck period . Scarring is likely in that time . And although consumers would get support from more transfers , the tax take will also rise . The stimulus might help corporate America in terms of revenue , but it will also knock 20 cents ( 12 %) off 2021 earnings . If / when earnings matter again there is a gravitational effect that should counter the stimulus enthusiasm somewhat . We are not afraid of a Biden victory , but we are not as excited as the market either .
POTENTIAL IMPACT OF TAX REFORM ON 2021 S & P 500 EPS
$ 180 $ 175 $ 170 $ 165 $ 160 $ 155 $ 150 $ 145
$ 140 |
Baseline forecast |
Statutory rate hike ( 21-28 %) |
GILTI tax increase ( 11-21 %) |
Minimum corporate tax ( 21 %) |
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SS payroll tax on high earners |
GDP impact |
Potential 2021 EPS |
Source : Goldman Sachs Global Investment Research , Deltec www . deltecbank . com Deltec Bank & Trust Limited