Thursday, November 8, 2012

Obama bad for stock prices?

I was thinking about why the stock market would take a dive on the day after Obama's re-election, then I started thinking about some of the things he has promised, and some of the consequences of the upcoming "fiscal cliff". Obama believes in raising corporate tax rates. That affects stock prices directly, by definition. stock value = discounted future cash flows of a company's after tax earnings. If corporate taxes go up, stocks get marked down because taxes are part of the earnings formula. As investors pull their money out, companies with less capital will eliminate jobs and cannot fund as much (any?) growth. I think that means it's time to get out of US stocks and invest somewhere else until the threat of higher corporate tax rates subsides.