After a strong Q1 saw the S&P 500 jump over 10%, equity markets retreated in April with U.S. and developed markets posting negative returns while emerging markets achieved only a modest gain.
Investor enthusiasm faded as Q1 U.S. GDP growth came in at 1.6%, a notable downshift from the 3.4% in Q4 2023.
Hot inflation data also fueled fears that central banks will not ease monetary policy as quickly as previously hoped.
Services prices, most notably healthcare and insurance, have started to reaccelerate and shelter costs also remain stubbornly above trend.
With the Fed being clear that its decision to lower rates will be data dependent and driven by inflation trends, the expected future path of interest rates changed throughout the month and the timing of a potential first rate cut got pushed farther out.
Accordingly, rate-sensitive equity sectors such as small caps and REITs where punished the most, with the later dropping nearly 6.0%, and fixed income markets suffered as 10-year Treasury yield rose 47bps to 4.7%.
Emerging markets was a positive outlier within equities, with the index returning ~0.5% driven by a significant rally in Chinese equity markets in the second half of the month.
Commodities, whose prices have been boosted by an overall resilient economic environment and danger of escalation in the Middle East, were the best performing asset class returning 2.7% for the month.
Despite these challenges, not all April headlines were negative as consumer spending, the largest component and driver of the U.S. economy, rose 2.5% in Q1 and had a particularly strong March which could indicate momentum into Q2.
As month end approached, all eyes turned to the Fed’s May 1st meeting where members unanimously voted to hold rates unchanged at 5.25% to 5.50% and calmed market fears by emphasizing that the next policy rate move is unlikely to be a hike.
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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
