The Two Reasons Investors Are Thrilled By Mitt Romney's Big Comeback

Business Insider

You can just sense Mitt Romney's comeback warming the market's cockles. Whether Mitt Romney would actually be better for the market than the current President is unclear, but his superiority is certainly the conventional wisdom.

In his latest nightly note, BTIG's Dan Greenhaus gets at the big reason to think Mitt Romney = bullish.

...developments seen in the polls have a meaningful, meaningful effect on potential fiscal cliff negotiations. Presumably, if Romney was to win, Republicans would also win the Senate which in turn would make fiscal cliff extensions a foregone conclusion. These two developments, leaving all other considerations aside, are favorable for investors and considering our nervousness regarding the path of cliff negotiations, a positive development for our outlook. In the immediate though, earnings are, to quote our friend Larry Kudlow, “the mother’s milk” and we’d very much like to see (and we expect) this earnings season to be better than expected.

The other big reason that Romney matters for investors: Treatment of dividends and capital gains.

In a note out last week, JPM's Michael Feroli talked about the huge potential "cliff" regarding taxation of investments.

The industrialist John D Rockefeller is said to have remarked “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” If Rockefeller were alive this coming New Year’s Day, he wouldn’t be too happy: on that day the dividend tax rate is currently scheduled to increase from 15% to the rate on ordinary income, which for taxpayers in the top bracket will mean 39.6%. When the new investment income tax that is part of the Affordable Care Act is included, as well as the re-introduction of the Pease limitation on item- ized deductions, the top marginal dividend tax rate will be 44.6%. The capital gains tax rate is also set to rise, for top- bracket taxpayers from 15% to 25%.

So presumably, a Romney victory improves the odds that these huge hikes don't go into effect.

SEE ALSO: Goldman is warning of a significant tax hike in the near future >



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