Thursday's selloff, likely prompted by fears that the Biden Administration will try and push through its tax bill in the somewhat near future, sent the S&P 500 down about 1.5%. Not surprisingly, smaller names were hit harder, with the Russell 2000 (down 2.94%) and Russell Microcap (down 2.89%) falling nearly twice as much.
There will likely be more volatility as we get closer to a vote, especially if there's any likelihood that it would pass in its current form. Rhetoric that the plan will only affect those "making over $400,000" is misleading at best. Pre-election campaign soundbites suggested that the $400K level applied to individuals, but in fact, it applies to households. In addition, the proposed increase in the capital gains tax rate to 39.6% for those making over $1 million, could affect anyone with money in the market if nervous investors with high incomes try and lock in gains at their current capital gains rate.
I'll save other elements of the plan, including proposed changes to the estate tax, for another day. It may be that major changes will need to be made to make this piece of legislation palatable enough for passage, but stay tuned. Most importantly, don't trust major media talking heads as they discuss this tax plan, and gloss over the details, read it for yourself. One of the professional organizations I belong to brought in a non-partisan tax expert to review the plan prior to the election. Suffice it to say that I did not like what I saw.
Meanwhile, fashion retailer Cato Corp. (CATO) , which I profiled on Wednesday, released fourth-quarter earnings on Thursday. Revenue fell 19% to $153.2 million versus the same quarter last year, and CATO lost $6.9 million, or 31 cents/share (versus a $3.2 million/13 cent loss last year). The company ended the quarter with $144 million, or about $6.35 per share in net cash and short-term investments, down from $151 million/$6.70 at the end of the previous quarter, so cash burn was minimal.
What we don't know yet, as the earnings release had somewhat limited information, is whether CATO bought back any stock during the quarter. I am anxiously awaiting the release of the 10-Q for more details. Interestingly, for the entire year, net store count increased by 49 over the year, to end at 1330. There was no mention of bringing back the dividend, and the company said that it will be keeping capital expenditures to a minimum this year, will not be opening any new stores, and won't be providing an outlook.