After surprising to the upside by coming in at 2.8% versus an expected 2.0% in Q2, U.S. economic growth for the second quarter was revised even higher to 3.0%.
The upward revision was driven by personal spending, a critical component of the consumer-driven U.S. economy, and was a welcome sign of strength amid ongoing concern that the U.S. was heading toward recession.
A disappointing July jobs report, however, reignited fear that the Fed had waited too long to start cutting rates, resulting in damage to the economy and labor market that would inevitably lead to a slowdown in growth.
Global equity markets were spooked and responded by plummeting during the first week of August,with the drawdown exacerbated by the unwinding of a popular carry trade due to Japanese rate hikes.
The pain was short-lived, however, as major U.S. indices where able to finish the month positive and market breadth expanded, although the July rotation into small-caps stalled with the Russell 2000 dropping 1.5% for the month.
One driver of the recovery was comments by Fed Chair Powell out of Jackson Hole which set the stage for a September rate cut and shifted the conversation to whether it would be 25 or potentially 50 bps.
With additional FOMC meetings in November and December, markets are now pricing in four cuts totaling 100 bps by year end, though the Fed has stated that its decisions will remain data dependent.
The labor market remains a source of concern, but inflation has continued to moderate as investors remain hopeful that the Fed can achieve a soft-landing.
Within fixed income,Treasury yields fell throughout August as bond prices rose, while the yield curve remained inverted for a now record 26th consecutive month.
Gold continues to climb, recently hitting a new all-time high. Oil has fallen significantly after topping $90 per barrelin April. Broad commodities remain mixed YTD, although the outlook remains positive with rate cuts on the horizon.
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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
