The World and Your Money Will Change in November
A new U.S. President will bring new economic plans. Here's what you can do about it.
Does Warren Buffett Know Something You Don’t?
Why did Warren Buffet sell over $848 million in Bank of America shares last week? That makes almost $1 billion of his shares sold since July.
One reason is that the stock price reached a 52-week high before he started selling back in July. It’s not uncommon for investors to take profits around record highs.
However, the shares he sold between Wednesday and Friday last week were all made at average prices. So, why is he still selling? Is he anticipating something to happen in America’s economy?
I wouldn’t be surprised if he is.
Analysts and policymakers have been discussing a possible recession for months, and researchers at J.P. Morgan believe there’s a 45% chance of one happening by the end of 2025.
In addition, Americans will vote for a new President in November, and both candidates plan to change economic policies significantly.
Those would be massive changes to America’s economy.
While Uncle Warren never explains his trades while actively making them, he may be storing cash to prepare to take advantage of a market downturn soon.
New President, New Taxes
U.S. election day is November 5, 2024. We don’t know who will win, but the new president will bring a new tax plan. Here are the specifics:
Kamala’s administration wants to:
Expand the child tax credit to $3,600 annually and add a new $6,000 tax credit for families with newborns.
Raise the federal minimum wage from $7.25 to $15, and eliminate federal income tax on tips.
Give first-time home buyers $25,000 in credits.
But it’s not all good news. Investors and higher earners aren’t so pleased with her plans. Kamala’s administration also plans to:
Increase ordinary income tax to 39.6% for those making at least $400,000 ($450,000 for joint filers) and Medicare surtaxes to 5%. The new marginal tax rate will be 44.6% — almost half of everything you make.
Further increase taxes for investors making $1M or more. Long-term capital gains and dividend taxes will increase from 20% to 39.6%.
Raise the corporate tax rate from 21% to 28% — any entrepreneur operating as a corporation will feel this.
Last week, I took an Instagram poll to gauge investors' feelings about the change. It’s safe to say that most aren’t looking forward to it.
Trump’s administration wants to:
Keep ordinary income tax where it is today, with the top marginal tax rate at 37%.
He proposes continuing to lower taxes on long-term capital gains and dividends, reducing the current maximum of 20% to 15%.
Lower corporate taxes, again, from their current rate of 21% to 15%.
But it’s not all good. Americans say these are the less favorable aspects of a Trump presidency:
He plans to repeal the Affordable Care Act, meaning millions of Americans would have difficulty accessing affordable healthcare.
Keep the federal minimum wage at $7.25.
Cancel all plans for student debt forgiveness.
While some of these economic policies might change, tailoring your investment strategy to fit the winning candidate’s plans might help you get the best returns in the upcoming years.
Brace Yourself for the “September Effect”
What the heck is the September effect?
93 years of data show that September is the stock market’s worst-performing month. Between 1928 and 2021, the S&P 500 averaged a 1% decline for September.
What causes the September effect?
Some believe it happens because investors sell stocks to lock in profits after summer vacations.
Others believe investors sell to prepare for the upcoming tax season. If investments lose money, they sell them to take advantage of “tax-loss harvesting” before the year ends.
There’s even a theory that institutional investors sell assets in September to increase cash reserves for the upcoming holiday season.
Yet, with all the data captured, no researcher actually knows why it happens. It’s an anomaly.
Do stocks fall every year in September?
No. The good news is that stocks aren’t down every September. Over the last century, September has been a losing month 55% of the time, so don’t panic yet.
What can you do to prepare for a possible September effect?
It depends on whether you’re a short-term or long-term investor.
Short-term:
The September effect is focused on the S&P 500.
So, short-term investors may want to take smaller positions in companies that are part of it. In other words, reduce your risk.
For example, last Friday, I sold $14,000 in NVIDIA to reduce risk in my trading account. If the market grows, I can always increase my position again; it's no big deal.
Long-term:
Stay the course because, historically, the market increases over time. The problem is you don’t know how much time it’ll take.
But theoretically, as long as you give yourself infinite time for the market to go back up, there’s nothing to worry about.
For example, I have a separate account where I invest with a long-term strategy. There, I hold $16,000 in NVIDIA. I won’t sell any shares. In fact, I’ll buy more if the September effect happens.
Tools and Resources
When stock prices fall, sometimes traders panic and sell, only to watch those companies rise to new all-time highs a few weeks later.
I don’t doubt it will happen again if the September Effect occurs this year.
If you want to learn how to stay calm, manage your emotions, and profit through market declines, you should read this book:
I read it in 2019, which changed how I invested and traded.
All the best,
-Earn Out Loud