Last week, the House passed the Build Back Better plan for President Biden which will now go to the Senate. What was helpful, is that our research partners at Strategus and the committee responsible for the Federal Government sliced up the 2,468-page bill and gave us a summary, which is shown in the video for this episode. Today, we are mainly looking at the funding of the bill. It’s not what’s in there that’s important but instead, what’s not in there. We’ve been spending a lot of time talking to clients, attorneys, and CPAs about how there has been a lot of fear and risk around massive increases on capital gains and estate taxes, neither of which broadly are in the plan. We don’t see a broad increase in capital gains in this bill anywhere and we don’t see any increases in the estate tax. There’s a lot of funding sources that we’re going to have to dig through since there are a lot of pages in this bill but, on the face of it, it appears that most of the biggest fears the market had, has been pulled out of this bill. A lot is likely to change between now and when it’s passed since it still must go through the Senate, but it’s very helpful to see. Between now and the end of the year, we don’t think we should expect to see any massive changes in terms of individual tax rates.
The Federal Reserve
This morning, President Biden announced that he will renominate Fed Chairman Jerome Powell. This is fantastic news for the markets and not because Jerome Powell is necessarily a better chairperson than his competition. The reason it’s good news is that the market likes consistency. We know what Jerome Powell would do in a crisis and we know what he would do in terms of rising inflation and interest rates. There’s a track record there that the market is already familiar with. Traditionally, when a new Fed chairperson comes in, there’s a shock within the first few years because the markets don’t know how to react to what that chairperson will do. With that track record already in place for Jerome Powell, the market seems to be reacting very positively to that news and not because of what Mr. Powell will or won’t do compared to the competition, but simply because it’s good to know what he has already done.
We had a lot of concerns going into November due to there being a lot of issues on the plate. However, the month of November has been good for the markets. We saw less volatility last week than we have in a while. On Friday, the S&P 500 closed at a price of 4,697 which gives us a new resistance level price of 4,730 and a new support level of 4,670. We’re also seeing moving day averages going up for the S&P 500. It finally crossed over that 4,500 mark to 4,511. While this week is a shorter week for the markets, it is still a very important one as we go into the final month of 2021 heading into the new year.
Initial Public Offerings
Last week we talked about some interesting topics that our viewers could bring up with friends and family over Thanksgiving. Another one that is interesting that we’re watching carefully since it could cause future volatility in the market, is the recent and current IPO’s or initial public offerings. One recent IPO of an electric vehicle manufacturer has us analyzing the current IPO market. After its initial public offering, the new carmaker had a higher valuation than both Ford and GM. There’s just one slight problem – the new company does not make a profit. In fact, as you can see in the chart shown in the video for this episode, in the last year, only about 20% of IPO’s were by companies that made money. This is a complete reversal since the 80’s when 80% of IPOs were profitable. The reason we’re watching these valuations carefully is that it is reminiscent of the year 2000 when just like today a tiny percentage of IPOs were profitable – right before the dot com crash. We do not think we’re about to see another dot com like pullback, but we’re always analyzing all areas of the market for potential trouble.
Inflation and The Consumer
There has been a lot of concerns surrounding inflation, labor shortages, supply constraints, and consumer sentiment. However, the October retail sales came out last week much stronger than expected with a 1.7% increase over the month and a 16% increase over last year. People might argue that we are currently paying more for goods than we were and last year COVID was a concern. Which are valid points, but pricing only accounted for half of those gains. One of the more interesting statistics we saw was that sales retail sales are up 21.5% since February 2020 and that was pre-covid shut down. So, all around these numbers are good.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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