Investors Paying Attention To DCRupert Hargreaves
Over the last few years, the political environment in both the United States and around the rest of the world has changed substantially. Political parties, specifically in western countries, have become more polarized and voters’ views seem to have become more extreme.
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More than a decade of austerity following the financial crisis is just one of the many factors that have given contributed to the rise of populist politics and right-wing views, and it does not look as if there is going to be a significant shift back to a more moderate stance anytime soon.
As the Brexit vote, and then a few months after, Donald Trump’s election to the White House proved, the shifting political sands are not necessarily bad news for investors. In fact, it seems the opposite is true. While investors initially reacted with panic to both events, in the months following, markets quickly recovered, and throughout 2017, the VIX, a popular measure of the stock market’s expectation of volatility (and uncertainty) remained below 15.
This begs the question; do investors care about politics?
Market research firm Spectrem Group set out to try and get an answer to this question earlier this year, questioning 1,117 investors throughout January and February to get their views on politics and investing. Conducted as part of the group’s Wealthy Investor Series, to qualify to take part in the survey, respondents had to have at least $100,000 of net worth, excluding their primary residence.
Titled ‘Politics, Taxes and Investors’ Changing Attitudes,’ the report is designed to gain some insight into investors’ attitudes towards politics today by asking the fundamental questions: Are they sick of politics or are they following it more closely than in the past? Do they support the recent tax reform package? Do they understand how it may impact their household? Who are they looking to for advice about how to efficiently implement and take advantage of tax reform?
The findings present a fascinating picture of the average investor and how they view today’s political environment in the United States. Most investors who responded to the survey had over $1 million of net worth. Of these, more than one third (37%) identified as Republicans with the next most significant percentage (34%) identify as independents.
However, while nearly two-thirds of respondents do not identify as Republicans, the survey shows that 3/4 of investors are enjoying the “Trump Bump” and believe their financial situation is currently better than it was a year ago. Moreover, most of these investors believe that their financial situation will only improve in the year ahead. “A large percentage” believes the bull market will last at least one or two more years.
On the whole, the investors seem to be mildly supportive of the current president. According to the report, there is a near-even split between investors who want to see the Trump administration succeed and those who watch politics in hopes the current administration fails. More investors are interested in politics because they are interested to see what the Trump administration will achieve.
Interestingly, while the bulk of respondents are enjoying the stock market “Trump bump” and their improved financial situation brought about by economic growth, higher stock prices and lower taxes, only 43% are “somewhat or significantly supportive” of the new tax reform measures. This compares to 35% who do not support tax reform, 23% of investors who are unsure how they feel about tax reform. These mixed responses seem to be based on the fact that most of the respondents don’t expect to see a significant decrease in their tax obligations, and many even expect to see an increase in payments.
36% of respondents reportedly said that their taxes would decrease this year while 28% believe they will increase and 18% are “uncertain.” 19% expect tax obligation to remain the same.
“More than half (53%) of respondents living in SALT (State and Local Real Estate Tax) states indicated their taxes would increase while 19% were uncertain. More than 40% of these investors prepaid their real estate taxes to take advantage of the deduction in their 2017 taxes.”
When it comes to corporate taxes, around half of respondents supported the new lower rate, with mostly younger investors against it Not surprisingly, Republicans support the change while Democrats are against it.
Finally, moving away from the topic of personal finance, 80% of respondents to the survey said that they disapprove that Congress votes along party lines on critical issues. An even higher percentage declared that they believe Congress should vote for what is right for their constituents, and not along party lines, which seems to suggest that investors are more concerned about local politics than anything else.