Following a strong start to 2024, the U.S. economy remained resilient in February and continued its growth trajectory, driven by falling inflation, a resilient labor market, real wage growth, and positive consumer sentiment.
Key Takeaways
The anticipated timing of the Fed’s first rate cut keeps extending. While market participants entered the year expecting six cuts, three or fewer cuts now appear more likely as the Fed has emphasized its decisions will be data dependent.
Inflation prints will continue to make headlines but the data has been trending lower with the Fed’s favored inflation indicator, PCE, getting closer to the 2% target. CPI is also falling but is running slightly hotter due to a larger constituent weight in housing.
Supportive economic data and better than expected earnings from U.S. companies powered another strong month for risk assets. Roughly three-quarters of U.S. companies exceeded Q4 earnings expectations with ~90% reported.
Newly found complacency with a soft-landing scenario has contributed to expanding investor risk appetite evidenced by a variety of factors stemming from historically tight credit spreads to the recent surge in crypto assets.
February was supportive for international stocks, although they continue to lag U.S. counterparts. Chinese equities rose more than 8% supporting emerging market equities. Japan has been a standout performer within developed, ex. U.S. indices.
Rates rose in the belly of the curve over the month, reflecting stronger economic data and growth expectations. With the rise in rates, duration-sensitive assets generally suffered.
Alternative assets continue to gain in popularity within diversified portfolios. Within the private equity sector, exit activity is set to increase as M&A and IPO conditions loosen and funds look to return capital to investors.
As investor optimism continues to impact markets and raise valuations, it’s a time to remain disciplined and express a modest preference toward quality and liquidity across asset classes and within portfolios.
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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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