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The record-breaking stock market that President Elect Joe Biden will inherit from President Trump is in danger of a post-Inauguration Day selloff, according to Wall Street strategists.<\/p>\n
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Tax hikes and a significantly improving economy leading to higher interest rates are concerns that could become driving forces for markets later this year.<\/p>\n
BIDEN'S TRILLION-DOLLAR SPENDING MAY RESTORE INFLATION MISSING SINCE '08 CRISIS<\/strong><\/p>\n “Post-inauguration correction likely on peak policy, profits & positioning,” wrote Michael Harnett, chief investment strategist at Bank of America.<\/p>\n The S&P 500 grew at a 13.73% annualized rate, or 67.26%, over Trump’s term, the index’s third-biggest annualized gain under a president, as investors celebrated tax cuts and the rolling back of regulations. The benchmark index, which set 150 records under Trump, finished 0.6% below its all-time high on Tuesday, the final full trading day of his term.<\/p>\n The Nasdaq Composite index, meanwhile, posted a 24.17% annualized return, the largest under a president since the exchanges debut in 1971 during the Nixon administration. The tech-heavy index set 183 records during Trump’s four years in the White House.<\/p>\n “Markets are priced for perfection,” said Greg Valliere, chief U.S. policy strategist at Toronto-based AGF Investments, which has $38.8 billion in assets.<\/p>\n Biden has pledged to raise the top corporate tax rate to 28% <\/strong>from 21%. The rate was lowered as part of Trump’s Tax Cuts and Jobs Act, which also encouraged U.S. corporations to bring home $1 trillion of overseas cash.<\/p>\n GET FOX BUSINESS ON THE GO BY CLICKING HERE<\/strong><\/p>\n Other tax changes being considered are hiking the top tax rate on capital gains and dividends to 43%, up from 24%, and also raising the income tax for the highest earners.<\/p>\n Aside from higher taxes, investors must grapple with the implications a red-hot U.S. economy will have on interest rates.<\/p>\n Economists at Goldman Sachs forecast U.S. gross domestic product will grow at a 5% annual rate in the first quarter of 2021 and a 5.8% rate for the year, boosted by the recently approved $900 billion COVID-19 relief package. The economy could grow at an even faster pace if Congress passes the $1.9 trillion package that Biden proposed last week. <\/p>\n A model from the Federal Reserve Bank of Atlanta that takes into account recent economic data shows the economy likely grew at a 7.4% annualized rate during the fourth quarter of last year after growing at a record 33.4% pace in the third quarter as businesses began to reopen following COVID-19 lockdowns.<\/p>\n STOCK MARKET BRACING FOR 'REGIME CHANGE' AMID WASHINGTON POWER SHIFT: GUNDLACH<\/strong><\/p>\n Enthusiasm surrounding the economic recovery has caused skittishness in the bond market where selling of U.S. Treasurys has resulted in the 10-year yield climbing from 0.515% on Aug. 4 to X% on Tuesday. The rally has come despite the Federal Reserve reiterating its pledge to keep interest rates near zero through at least 2023.<\/p>\n Valliere said he “wouldn’t be shocked” to see the 10-year yield <\/strong>reach 1.5% by the summer and warns the yield approaching 2% would be a “concern for the stock market,” which has seen a relentless bid fueled by the Fed’s promise to keep rates low and talk of additional fiscal stimulus from Congress.<\/p>\n The S&P 500 price-to-earnings ratio is currently trading at 27.4 compared with its historic average of 17.6 going back to 2000, according to Dow Jones Market Data.<\/p>\n