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How the Obama Budget Will Impact Markets: Fund Strategist

President Obama on Monday sent Congress a $3.8 trillion federal budget that includes a $100 billion jobs package, more education spending, higher taxes on families earning more than $250,000 a year and a focus on controlling the deficit. What kinds of impact will this have on stocks going forward? Barry James, president of James Advantage Funds, discussed his views.

“It will be a positive in one sense in that there will be a lot of spending done this year,” James told CNBC.

However, James said it is not necessarily an efficient way to spend, as, according to research, it takes “$7 of government spending to equal $1 of private sector spending.”

“The biggest weight on the stock market will be the taxes,” he continued.

"There’s talk of about $2 trillion in tax increases over the next 10 years built into the budget, and it is punishing for those that employ people—the small businesses.”

James also said that markets tend to fall 40 percent of the time in the year before tax increases are imposed. He added that there is a likelihood of a stock market correction.

“Even though the earnings are coming in on a positive surprise note, only about half of the companies are coming in with better earnings than a year ago, and only about 40 percent have better revenues than a year ago,” he said.

“So these things built together form a picture that we’re likely to have a much lower market.”

James told investors to prepare by being defensive.

“Pull back, get some cash and get some high-grade bonds in your portfolio to preserve capital,” he recommended.

  • Watch James' Previous Appearance on CNBC (Oct. 20, 2009)

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Disclosures:

No immediate information was available for James or his firm.

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