After slowing to 1.4% in Q1, the initial reading of U.S. economic growth for Q2 surprised to the upside and came in at 2.8%, beating the consensus estimate of 2.0%.
The labor market continues to demonstrate signs of weakening as the July unemployment rate climbed to 4.3%, up from 4.1% in June, marking its fourth consecutive increase. Job growth also disappointed as the economy added 114,000 jobs, well below the expected 175,000.
Inflation, as measured by the consumer price index, continues to moderate after briefly spiking in Q1, providing some relief to households as consumers have also shown signs of weakness in recent months.
Markets are now pricing in a 100% chance of a September rate cut, with focus turning to whether it will be 25 or 50 basis points. Confidence in a cut was boosted after the July FOMC meeting when Fed Chair Powell finally turned dovish by stating a September cut is now “on the table”.
Equity markets finished mixed in July, but the biggest story of the month was the 10.5% surge in the Russell 2000 as money started to rotate out of richly-valued tech stocks and into small-caps, which had been out of favor for several years.
The beginning of August, however, was marked with heightened global volatility and a sharp selloff as U.S. recession concerns were ignited by the underwhelming July employment data and the Bank of Japan raising its policy rate from effectively zero spooked investors and unwound a popular carry trade used by hedge funds.
Many economists, on the other hand, feel that fear of an impending recession is premature and point to persistent
GDP growth and unemployment remaining below its historical average to support their argument.
With election and geopolitical uncertainty on the rise, and talk of a coming U.S. recession dominating headlines, volatility may persist throughout the back half of the year. One of the best defenses for investors remains diversification and ensuring investment portfolios are properly aligned to long-term financial goals.
Click the link below to read our full report.
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
