by Jason Bodner

May 4, 2021

History is littered with “facts” that turn out to be myths. For instance, you may have heard that Einstein failed math class. Not so. Albert himself had to dispute that rumor. He was at the top of his class in primary school. He would rightfully claim, “Before I was 15, I had mastered differential and integral calculus.”

But wait! There’s more:

  • George Washington never had wooden teeth. His dentures were made of gold and ivory which browned, appearing like wood.
  • According to physicists, a penny dropped from the Empire State Building is too flat or small to reach enough momentum to kill anyone.
  • Napoleon wasn’t short; he was 5’5,” which was average height at the time. British cartoonist James Gillray drew caricatures depicting him as small to belittle him. It stuck.

I could go on and on: “Truth” is elusive, because once crowd-think gets going, it’s hard to stop.

I’m telling you this because there are market bears out there. This is inherently good, because without bears, bulls couldn’t make money. And when everyone’s a bull, then it’s probably time to be a bear. But most of the time, bears just add a grumpy downward resistance on stock prices for bulls to fight against.

There’s generally no shortage of fearmongering in the stock market.

The latest scare for stocks is two-fold:

  1. President Biden will jack up taxes and kill the economy.
  2. The sky-high P/E ratio on the S&P 500 virtually ensures an imminent meltdown.

I’ll dig into both, and tell you why I prefer to see cute teddy bears, not rabid snarling claws-out Grizzlies.

Let’s get to it.

1) What About Higher Taxes?

No one is dying to pay higher taxes, certainly not me. But let’s assume the unlikely worst: Biden’s tax proposal passes without obstacle. The first instinct is to think it’s cataclysmic for stocks. But would it be?

Looking back since the 1950s, tax hikes may not actually pose significant hurdles to investors after all.

When we hear of higher taxes, we think sinking stocks, but that’s like a short Napoleon. The fact is that for 70+ years, stocks have shown better-than-average returns when tax increases hit. Naturally, other economic factors helped influence market action, but stocks generally went up when taxes rose.

There are several types of taxes – like corporate, personal, and capital gains taxes. Seldom do all three go up at once. All three went up in 1968 and 1993 and both personal and capital gains taxes went up in 2013.

In 2018, markets cheered as the Trump team slashed top corporate taxes to 21%, and top personal taxes to 37%. If Congress does nothing, these top rates will end in 2026 and would return to top rates of:

  • 35% for corporate taxes
  • 39.6% for personal taxes

Biden is essentially proposing these changes take effect sooner. They are really aimed at those who earn more than $400,000 a year. This mainly affects the wealthy, but if you’re an investor living in a high-cost city like New York, there’s a fair chance it would affect you. For instance, if you live in Manhattan, your top rate could go to 58%, that is, a 39.6 personal rate + 3.8 health care + 3.8 NYC tax + 11 state = 58%.


Let’s just say these taxes go into effect. Historically, stocks reacted opposite to how you might expect. Since 1950, taxes were increased 13 times. During that time, the S&P 500 posted above average returns according to research done by Fidelity sector strategist Denise Chisholm. She pointed out that the year before and during a tax increase, stocks rose 12 of 13 times (all but 1969), and they went up 100% of the time corporate or personal income taxes were raised (but not capital gains taxes).

Stock Price Returns During Tax Increases Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This also extended down to individual sectors. She said the S&P Discretionary sector counterintuitively did better during tax increase periods. Her research also showed that bonds also did the opposite of what was expected. Instead of attracting capital, bonds actually floundered during the same periods.

Here’s the likely reality: In “Negotiation 101,” President Biden needs to come to the table with more than he expects. In the words of Louis Navellier: “Democrats need to win the mid-term elections. They can’t do that if Biden wrecks the economy. He needs to push a lot and walk away with some compromise.”

Essentially, this is all optics. The truth is, it is entirely unclear if Biden’s tax talk will ever make it to law.

2) What About Today’s Super-High P/E Ratios?

Yes, P/Es are really high. Today’s trailing S&P 500 P/E ratio is 42.57, highest since 2008. Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That’s worrisome. But here’s the deal: Earnings are rising – fast. With price divided by earnings, a larger denominator means a shrinking P/E. Earnings are rising to meet price, not prices falling to meet earnings.

According to FactSet, 60% of the S&P 500 reported Q1 results so far. Of those, 86% beat EPS estimates. If that trend continues, this will be the highest “beat rate” since FactSet started tracking this figure in 2008. In aggregate, first-quarter earnings are coming in at a huge 22.8% above original estimates. S&P 500 Earnings Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What does our Big Money Index (BMI) say? Despite a choppy market last week, Big Money data is on the rise. The Big Money Index just ripped up to 77.4%: Big Money Index Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Buying last week was focused on Real Estate, Materials, Industrials, Financials, and Discretionary: MapSignals Sector Rankings

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

These factors are not bearish:

  • A rising BMI.
  • Buying in infrastructure and reopen sectors.
  • Virtually no selling to speak of.

Therefore, before we get carried away by talk of rising taxes taking us off a cliff, it pays to know the facts. Most of us don’t want to pay more taxes, but most of us don’t know that, historically, it’s not a big deal. And the hard truth is, if the wealthy get taxed, they are the ones who know best how to minimize the effect. Loopholes and tax strategies are rarely employed by the middle and lower classes. That’s because good accounting is expensive. There’s the rub: Taxes aimed at levelling the playing field usually don’t.

Rich socialite Leona Helmsley famously said, “We don’t pay taxes. The little people pay taxes,” but she was way wrong. The richest 1% pay more than the poorest 90% in income taxes, but history also shows that the rich actually pay more taxes when rates are lower, and they think their taxes are “affordable.”

That’s just another example of what Mark Twain said: ” What gets us in to trouble is not what we don’t know: It’s what we know for sure just aint’t so.”

Samuel Clemens Photo

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Another Rising-Rate Rotation Coming

Sector Spotlight by Jason Bodner
Beware of “Things You Know that Just Ain’t So”

View Full Archive
Read Past Issues Here

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

Important Disclosures:

Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at or by requesting a copy by emailing All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.