JPMorgan says U.S. capital gains tax hike may briefly hit stocks

Bloomberg reports that according to JPMorgan Chase & Co., if Democrats do “sweep” the November elections and increase capital gains taxes, it would be unlikely to cause more than a temporary slide in the U.S. stock market, 

If a higher rate become effective Jan. 1, 2022, there would probably be some downward pressure in equity markets in the fourth quarter of 2021, according to JPMorgan strategists led by Nikolaos Panigirtzoglou. But once the new rate was in place, stocks would likely resume their upward trajectory, as they did in the first halves of 1987 and 2013 following increases on some capital gains.

“Longer term, we see little impact from a prospective capital gains tax rate increase on risk taking and investors’ attitude toward equities as an asset class, given the current low yield and high equity risk-premium environment,” the strategists wrote in a note.

JPMorgan estimates there could be tax-related equity selling of about $200 billion around a prospective increase in the capital gains rate, impacting U.S. stocks by about 5% -- similar to what was seen in late 1986 and 2012.

“But such pressure is likely to be temporary, and once the new capital gains tax rate is introduced, the equity market would likely resume its uptrend in even stronger manner,” the strategists said.