EDITOR NOTE: With large financial firms like BlackRock warning its investors that Biden’s proposed corporate tax increase can significantly shave some returns off stock market investments, investors have begun piling into so-called “risk-free” assets such as the 10-year Treasury, its yield falling to 1.25%, the lowest it’s seen since February. Some experts claim that Biden’s tax increase could even halt economic recovery in America. Considering everything that’s going on, this is just one factor among many others that can bring economic recovery crashing down. If anything, it attests to the uncertainty in the markets. And given the stock market’s exceedingly high valuations, who, with sound mind, wouldn’t feel the slightest acrophobic jitters?
Financial markets are flashing warning signs over the economy, signaling that economic growth could be slowing and that the Biden tax increases could stop the economic recovery.
The Treasury's 10-year yield has plummeted in recent weeks, "reflecting investors' anxiety about the economic outlook," according to a Wall Street Journal article last week. The article said that the Treasury yield is a "closely watched economic barometer" with yields falling when the economic growth outlook declines. Markets are also worried about last week's unexpected increase in jobless claims and this week's jump in consumer prices, the largest one-year increase since 2008.
The 10-year yield dropped to 1.25%, the lowest level since mid-February. This economic barometer has been dropping since President Joe Biden proposed his corporate tax increases. The 10-year yield peaked at 1.74% on March 31, the same day Biden proposed more than $2 trillion in corporate tax increases, and it has been trending down ever since.
The decline accelerated in late June, when some centrist Democratic senators said they would support a Democratic-only filibuster-proof reconciliation bill with corporate tax increases. The drop continued when a number of economic forecasts were released projecting a slowdown in the economy.
The Congressional Budget Office budget update released on July 1 projected economic growth dropping from 7.4% this year to 1.1% in 2023 and 1.2% in 2024 and 2025. A Penn Wharton analysis of the Biden spending and tax increase plans released on July 6 projected the GDP dropping 1.2%, real wages falling 0.8%, and the capital stock declining 3.0% by 2031.
Wall Street analysts are starting to worry about the prospects of corporate tax increases passing. Consider the fact that BlackRock, the largest money manager in the world, is now warning clients that the proposed corporate tax rate increases could reduce average earnings per share for S&P 500 companies by as much as 7%.
Markets are reflecting investor anxiety about the Biden tax increases. The future is looking less promising thanks to prospective tax increases on the horizon. The markets are telling us that the enactment of trillions of dollars of new tax increases on businesses will slow economic growth and shut the economic recovery down. It makes no sense to enact these tax increases just as the economy begins to recover.
Original post from Washington Examiner