If you live in states like NY, Pennsylvania or California and you are taxed at the 39% rate, add in the extra cost of state and city tax plus extra SS tax and the government will be taking well over 50% of your salary. This will not spur investment and spending. We’ll have to see if this slows the economy even more.
First things first, however, in the near term many will be selling stocks before year end to take advantage of this year’s lower capital gains rates. That will put some external pressure on the market.
There may be a shift toward infrastructure and health care stocks as well as other industries we will need to continue to flush out. But right now President-Elect Obama needs to clarify his short-term stands on a range of economic issues in order for the market to stabilize and get a more solid footing.
At the very least, what we want to see now is a market that is more focused on fundamentals. A market that can price securities relative to their perceived future values as we take interest rates, inflation and the prospects for world growth into consideration. At that point we will see mutual fund managers have more control over their performance numbers. Right now only those who have their money in cash or have shorted the market are doing okay. This situation is not a long-term solution and the long-only managers – those that own stocks will do considerably better over time.
We’ll continue to keep you informed.
