UBS Managing Director and Senior Portfolio Manager Jason Katz explained why he believes markets weren’t tumbling on Monday after the Senate passed the Democrats’ social spending and taxation bill following a marathon “vote-a-rama” session that lasted more than 15 hours.
The passage of the bill is the culmination of more than a year of intra-party negotiations among Democrats trying to pass a party-line bill. They used a process called budget reconciliation, which allows them to get around the Senate filibuster, to move forward.
Despite the bill’s passage, which includes more than $400 billion in spending and more than $700 billion in taxes, U.S. stocks moved higher on Monday morning.
Speaking on “Varney & Co.” on Monday, Katz argued that he believes markets are “really absorbing the job numbers in terms of how the Fed may react to it,” calling it “really good news.” He also noted that, while the runway for a soft landing may have shortened, “a crash landing is probably avoidable.”
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On Friday it was revealed that U.S. job growth unexpectedly accelerated in July, defying fears of a slowdown in hiring even as the labor market confronts the twin threats of scorching-hot inflation and rising interest rates.
Employers added 528,000 jobs in July, the Labor Department said in its monthly payroll report released Friday, blowing past the 250,000 jobs forecast by Refinitiv economists. The unemployment rate, meanwhile, edged down to 3.5%, the lowest level since the COVID-19 pandemic began more than two years ago.
The expectation now with a strong jobs report is that the Fed will continue to take aggressive action to try and curb inflation, which remains at four-decade highs, according to the data for June released last month — which, at the beginning of the year, reduced investor appetite to hold assets perceived as higher risk.
It was revealed last month that the U.S. economy experienced two consecutive quarters of negative GDP, which constitutes the technical definition of a recession.
The Federal Reserve has been moving to tighten policy at the fastest pace in three decades. Policymakers already approved a 75-basis point rate increase in both June and July. Markets experienced turbulence during the first half of the year as investors ingested economic data and priced in several rate hikes by the Federal Reserve as the central bank tries to curb persistent inflation.
Katz argued on Monday that markets aren’t overreacting given “there’s a perception out there that this spending bill is not as onerous as ‘Build Back Better’ was.”
“The 15% minimum corporate tax rate isn’t the 28% we all feared when the Democrats took control,” he said.
Democrats initially tried to advance a “Build Back Better” bill worth more than $3 trillion last year. The new version of the bill, called the “Inflation Reduction Act,” is significantly scaled back from that.
Katz added that the bill doesn’t present a change to “carried interest,” noting that there are people who believe that will “motivate these private equity funds to deploy capital and the economy.”
The portfolio manager also pointed out that the bill includes a 1% tax on corporate buybacks for most publicly-listed companies.
“There’s those that argue it doesn’t have a material impact on corporate earnings,” he told host Stuart Varney. “I would argue otherwise.”
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“I’ll tell you this: I think one of the biggest reasons for the rally today is there’s a scramble in corporate boardrooms to get those buybacks in now before that tax goes up,” he said.
Fox News’ Tyler Olson and FOX Business’ Megan Henney contributed to this report.
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