Few in the media noticed, but stock markets surged since Sen. Joe Manchin (D-WV) pulled the plug on President Joe Biden’s $1 trillion tax hike proposal.
Markets have climbed to their highest point in six weeks. The Dow Jones Industrial Average jumped 655 points the day the news came out on July 14 and increased more than 1,200 points over the next week. This was welcome news to the millions of people saving for retirement who have lost trillions of dollars in their accounts since the start of the year. Facing soaring inflation, rising interest rates, and the threat of tax increases, stock markets had their worst first half of the year in decades. The Dow was down 15%, the largest drop since 1962.
According to an analysis by the Center for Retirement Research, IRA and 401(K) participants have lost $3.4 trillion this year. Investors outside of retirement accounts have lost an additional $6.4 trillion, for a total loss of nearly $10 trillion for U.S. market participants.
But in the week after the Manchin news, markets increased more than 4%, recouping a portion of the lost savings. Last week’s market rally saved retirement savers and investors about $1.5 trillion in market value.
To be sure, the markets are still down substantially from their recent highs. Possible news this week about higher interest rates and negative GDP growth could reduce the market gains further. Still, there is no question that removing the threat of massive tax increases provided some relief to investors.
Bruce Thompson was a U.S. Senate aide, assistant secretary of the treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
