U.S. equities rallied after Trump's reelection, with small-cap stocks gaining 11.0% and the S&P 500 reaching a new all- time high after returning 5.7% in November, driven by the prospect of tax cuts and less government oversight.
Market breadth continued to widen as all eleven S&P 500 sectors advanced, led by consumer discretionary, which is typically a bullish sign for the broader market.
Outside the U.S., developed and emerging market equities posted negative returns due to concerns over Trump’s nationalistic policies that would most likely hamper global trade and currency losses from a stronger dollar.
At the November FOMC meeting, Fed Chair Powell announced a 25 basis point rate cut, bringing the target range to 4.50%-4.75%. Treasury yields, however, crept higher over subsequent weeks due to expectations of higher inflation from the new administration’s proposed economic policies.
Within labor markets, the JOLTS survey reported an increase in job openings from 7.37 million in September to 7.74 million in October. Additionally, layoffs fell to their lowest level since June, while quits reached their highest level since May, indicating increased worker confidence in their ability to find a new job.
Core PCE, the Fed's preferred inflation measure, rose by 0.3% in October and 2.8% year-over-year, aligning with expectations. Prices for services increased by 0.4%, while goods prices fell by 0.1%, though Fed officials remain confident that inflation is moving towards their 2% target.
ISM Services PMI, which measures the economic activity of services companies, fell 3.9% from 56.0% in October to 52.1% in November, though remains above 50.0% which marks the cutoff between expansion and contraction.
The Consumer Confidence Index rose from 109.6 in October to 111.7 in November, marking its highest level since July 2023. Consumers' inflation expectations dropped to 4.9%, the lowest since March 2020, despite concerns regarding potential inflation from Trump's policies.
The housing market continues to weigh on consumer confidence as prices remain elevated and mortgage rates jumped higher after bottoming near 6.0% in late September.
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Initial 2021 Tax Considerations
With the swearing-in of a new President and Vice President, plus convening of the next Congress, affluent Americans are weighing how changes in federal government may financially impact them.
Given that Democrats hold the Presidency and control both Houses of Congress by a slim margin, it now seems likely that tax reform could be passed as a budget reconciliation bill and then signed into law. While there is a remote chance that expected tax changes will be retroactive, it is more probable that they would take effect immediately upon becoming law or even at the start of 2022.
Since 2021 may be a last opportunity to capitalize on current income, capital gains, and transfer tax laws, families are considering key financial & estate planning adjustments, where appropriate.
Income & Capital Gains Tax Proposals
With the swearing-in of a new President and Vice President, plus convening of the next Congress, affluent Americans are weighing how changes in federal government may financially impact them.
Given that Democrats hold the Presidency and control both Houses of Congress by a slim margin, it now seems likely that tax reform could be passed as a budget reconciliation bill and then signed into law. While there is a remote chance that expected tax changes will be retroactive, it is more probable that they would take effect immediately upon becoming law or even at the start of 2022.
Since 2021 may be a last opportunity to capitalize on current income, capital gains, and transfer tax laws, families are considering key financial & estate planning adjustments, where appropriate.
“Be fearful when others are greedy and greedy when others are fearful.”
Responsive Planning
Given the above proposals, there is great uncertainty surrounding future tax policy. Even if some of the more benign tax provisions now in effect are not repealed, many of them are scheduled to sunset at the end of 2025 already.
Phase out the 20% pass-through deduction on qualified business income for people with annual income exceeding $400,000
Eliminate capital gain deferral through like-kind exchanges of business & investment real estate for people whose yearly income exceeds $400,000
Increase the highest corporate income tax rate from 21% to 28% and subject corporate book income of $100,000,000 or more to a 15% alternative minimum tax
Double the tax rate on global intangible low tax income (GILTI) earned by foreign subsidiaries of American businesses from 10.5% to 21%
Impose a 10% surtax for U.S. companies that move manufacturing & service jobs to another country and then provide services or products for sale back to the American market
Create an advanceable 10% “Made in America” credit for manufacturers’ revitalizing, re-tooling and hiring costs
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