Fourth quarter U.S. GDP growth slowed from 3.1% in Q3 but remained solid at an annualized 2.3% rate, driven by a resilient consumer and increased government spending.
Despite a bumpy ride driven by a stronger-than expected jobs report and a shake-up within artificial intelligence leadership, U.S. equities posted strong January returns.
Global equities also had a strong showing, with developed markets (+5.3%) outpacing the S&P 500 (+2.8%) with emerging markets not far behind (1.8%).
The FOMC left the Federal Funds Rate range unchanged at 4.25% - 4.50% after their January meeting as progress on inflation has stalled in recent months, though they acknowledged the labor market remains stable.
Consumer confidence dropped from December and came in below expectations amid concerns of rates staying higher-for-longer and average 12-month inflation expectations increasing to 5.3% from 5.1% a month prior.
Fixed income markets broadly finished higher after a turbulent month that saw U.S. 10-year Treasury yields hit a recent high of 4.79% before dropping to 4.58% by month-end.
Entering February, President Trump made headlines and shook markets by announcing significant tariffs on Canadian, Mexican, and Chinese imports, though deals were quickly struck with Canada and Mexico to delay the start for 30-days.
China quickly retaliated with tariffs ranging from 10% to 15% on various U.S. goods which are currently slated to start on February 10th. They also launched an antitrust investigation into Google and implemented export controls on minerals essential for high-tech industries.
The tariffs, if ever fully enacted, are likely to raise prices and slow economic activity, which could have a meaningful impact on stocks, bonds, and exchange rates, though the situation continues to evolve making it difficult to properly assess or predict the impact on investments.
Should uncertainty continue and lead to an extended period of heightened market volatility, the best defense for investors is a well-diversified portfolio with overall risk levels aligned with long-term goals.
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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
