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What Matters Most to the Markets: Congress and Securities & Exchange Commission

What Matters Most to the Markets: Congress and Securities & Exchange Commission

FinDec℠ welcomed back Washington-based political analyst, Michael Townsend, who serves as Charles Schwab’s Managing Director of Legislative and Regulatory Affairs. This fulsome discussion outlined the current issues and developments on Capitol Hill and how they are affecting markets. Townsend interpreted the latest legislation and its potential impact on the economy, taxes and retirement savings. He also gave us his insight on geopolitical developments, his predictions on policymakers’ next steps and explained how the political configuration of Washington has historically affected markets.

FinDec℠ Chief Investment Officer, Tolen Teigen, hosted the session that encompassed covered topics from green investments and cryptocurrency to midterm elections and the debt ceiling crisis. Extracting key market-influencing information from the Washington noise, Townsend shared valuable information for consumers and investors. Below is a recap.

There’s never a dull moment in our nation’s capital, and as we begin a midterm election year, the overpowering political noise makes it difficult to focus on the key issues that could potentially impact the markets. Townsend said the market is watching the following issues:


1. Bipartisan Infrastructure Bill

This was a big win for the president when it was signed into law in November. States will begin road construction, bridge repairs and other projects that will span over the next few years. There were no tax increases associated with this bill. Infrastructure is popular with voters who are already beginning to see improvement projects in their communities.

2. Build Back Better Act

While the Infrastructure Bill was a triumph for the administration, the Build Back Better Act is still up in the air and causing more angst and political division with every iteration. With major objections from Joe Manchin (D-WV) and others, this will most likely end up as a slimmed-down version, and how it will be funded is yet to be determined.

Many items in the original version had some investors, specifically the wealthiest filers, nervous as they anticipated changes in capital gains laws beginning in January. It didn’t pass, and now the original proposals, which would have had a sweeping effect on everyone, are now relatively narrow in scope. The crackdown on “Mega IRAs” will most likely be revisited this year and will most likely affect those with large retirement accounts.

Questions have surfaced as to whether the final version could include legislation that would be retroactive, but Townsend believes that the longer it takes for it to get passed, the less likely it is that any of the items in it will be retroactive. The markets will continue to watch closely to see the implications the final version will have on such things as the SALT deduction cap, retirement revisions, tax on stock buybacks, and the corporate minimum tax – all designed to offset the cost of the programs associated with the act (social services, climate change, etc.). The markets are keeping a close pulse on this.

3. SECURE Act 2.0

A candidate for Congressional action in 2022, the SECURE Act 2.0 has been floating around Congress for the better part of 2021. It is a reference to the SECURE Act that raised the Required Minimum Distribution (RMD) age to 72 a few years ago. The 2.0 version will raise RMD to 75. There is a lot of support on both sides of the Hill, and Townsend believes it may get some traction early this year. This would increase catch-up contributions to $10,000 and help small businesses offer a plan to employees. It is seen as a positive, with support from both sides, but the question is, “Where is SECURE Act 2.0 on the priority list?”

4. Debt Ceiling Crisis

The debt ceiling is an artificial cap on the total amount of debt the government can accumulate so it doesn’t default on its debts, and when you start talking doubt potentially defaulting, markets tend to get a little anxious. In December, Congress “kicked this can” down the road by raising the ceiling enough to take the issue off the table until early 2023. Neither party wants this to be on the table during elections. Raising the debt ceiling does nothing to address the debt, it just gives the government permission to accumulate more debt. The market, says Townsend, likes the certainty that comes with a particular timeline.

5. Looming Government Shutdown

Congress has not passed any of the 12 appropriations bills it is supposed to pass each year to fund federal programs/agencies. It passed a series of short-term extensions to operate at last year’s rates through February 18, 2022. Congress is working on a bill that would allow all the appropriations bills to pass before February 18, and if they can’t come to an agreement, Townsend says the result will be to buy time by extending funding for a few more weeks. The markets are keeping an eye on it but are not super worried about it.


This is a midterm election year, and you will see a slowdown in legislation on Capitol Hill because neither party wants to give the other side any advantage. It’s very common in the second year of a presidency to have a big regulatory agenda because those whom the president appointed have had time set settle into their new jobs and are prepared with their agendas.

It will be a big year in the SEC space, says Townsend, so be on the lookout for changes in market operations, but remember, the regulatory process is slow, and it may take a while for things to happen.

1. Meme Stock

The notion that social media can influence stock prices was brought to life with Game Stop and AMC Entertainment last year. The SEC will examine how our markets work in different ways, and we will see significant proposals on market operations this year.

2. “Gamification” of stock trading

Has it become too easy to have inexperienced investors using their phone to make a trade? Expect to see some rules that will require more upfront education for new investors before they can make certain kinds of trades.

3. Market plumbing

What happens when you push “trade” on your app? Who touches your money along the way? Are there conflicts of interest? How has the money changed hands? What is the flow? The interworking of mobile trading will be explored this year.

4. Public company disclosure

Anticipate some rules that will improve climate risk disclosure. The rules were written more than a decade ago, and investors are more interested than ever before in the ESG, or “green” investment space. Look for more standardization of fund names and parameters around using terms such as “green” or “sustainable” investments, making it easier for investors to compare them. While it does seem like this administration will have a greener agenda, the push for renewable energy, says Townsend, is not going to deplete the oil and gas markets. “There’s room for both because you may have the ability to collect a lot of solar energy in Arizona, but it takes fuel to get that energy to the east coast,” he said.

5. Cryptocurrency

Look for some regulatory framework around digital or virtual currency.

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