With all the hype about tax breaks for the middle class and tax increases on high income families in order to fix our deficit and benefit our economy we decided to take an indepth look at the distinct correlation between different incomes’ taxes and our economic prospects in general.  Using information from the Congressional Budget Office and the Tax Foundation we were able to compile the federal tax rates for all five income quintiles as well as the top one percent of families in particular from 1979 to 2008.  At the same time, we looked at the nation’s real GDP growth since 1979 and came up with some striking similarities and differences.  First lets look at the chart of how the federal tax rate has changed since 1979:

The most evident trendlines are the ones depicted above as well as something of an inverse with the very lowest quintile in which the tax rates increased first then have decreased since the mid 80’s.  The greatest increases for the highest income quintile and the top 1% occured in the 90’s during the Clinton Era.  Now lets examine the graph of real GDP growth in the same time period.  While there is clearly much more volatility and random noise, there is once again a distinguishing trendline.  Graph Follows after the Break:

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After starting the week off with two down days investors responded soundly sending the major indexes up 2% as a stock rally occurred across the board.  The markets jumped in the opening minutes of trading after the Federal Reserve issued a slightly positive outlook on the economy after keeping interest rates still.  The boost in investor confidence from this announcement led to a spike in buying today as stocks erased all losses from earlier this week and are now well positioned to finish this week up, for the seventh week in a row.  The markets rose despite a lower than expected GDP number for last quarter as well as continuing fears of the swine flu epidemic.  The leasing sectors in today’s rally were the financial and transportation sectors.  The financial sector rose as hopes that banks will not need additional funding as well as investors beginning to see a bright light at the end of the tunnel fueled buying.  The transportation sector rebounded after being hammered yesterday after fears that the swine flu epidemic would greatly effect travel over the next few months.  Morgan Stanley rose more than 9%, Bank of America rose almost 7%, and Citigroup rose almost 8%.  Goldman Sachs and JP Morgan each rose more than 5% on the day.  These were the leaders in the financial rally which led the sector higher 3.57% while the Dow only rose 2.1%.  The transportation sector leaders include many of the airline companies such as Airtran Holdings which rose more than 10% today.  Today’s rally extended the markets gains since a rally that started on March 10th.  From that day the Dow is now up 25% and is only down 6.7% on the year.  Since the same day the Nasdaq is up 35% and is currently up almost 9% this year.  Markets have a chance to continue the rally tomorrow as we have earnings from Exxon Mobile and Procter and Gamble  before the opening bell.

Markets were down yesterday due to concern regarding the spread of the Swine Flu. At first I was a little confused. “How could a silly little flu affect our stock market?” The answer is quite simple. Investors are scared that the U.S. government will take the same action the Mexican government did by forcing movie theaters, schools, other stores, and government builds to close. The swine flu is also not good for the already beaten travel sector. “If swine flu morphs into a pandemic, it’s the last thing the world economy needs, as it’s already on its knees…During times of global flu pandemics, three trends take place: equity markets fall, the dollar strengthens, and there’s a flight to quality,” said economist Kenneth Broux at Lloyds Banking. Because we are already in a recession, people are already looking for quality. The market will probably fall but not drastically enough to affect all sectors. I have a few stocks that should do well as this crisis gains coverage. The stock I am going to recommend is not the faint of heart. Someone who invests in Novavax Inc should be watching announcements continuously from both the company and the government just incase any positive news comes out about containing this epidemic. NVAX jumped 25% today and will probably continue to soar. However, if you are a bargain hunter and not someone who plays the market for short term gain, then in a few weeks I would look into buying some dirt cheap travel companies.  So no matter what type of investor you are, there is room to gain from this crisis so look to investing short term in drug companies and long term in travel companies. 

The markets fell today as fear of the global impact of the spreading swine flu problems hit Wall Street.  The Dow fell 50 points while the Nasdaq fell 14.  Markets were propped up by General Motors after they announced they will be cutting their Pontiac branch which is aiding hopes the company may be able to avoid bankruptcy.  Despite the down markets GM rose more than 20% during today’s trading session.  The financial sector dropped more than 2% today as worries that the bank stocks quarterly stress tests would come in lower manifested themselves in the form of a sell off.  Wells Fargo dropped 5% today, Citigroup dropped almost 4% and Bank of America fell 2%.  Tomorrow is a much needed up day for the markets if investors wish for the current 6 week rally to continue.