U.S. economic resilience continued to surpass expectations, but early signs of a slowdown may be emerging. Slowing growth likely represents a normalization rather than a rapid deterioration barring any exogenous shock.
The consumer is demonstrating some signs of weakness including reduced spending on basics such as food and clothing, as they are increasingly pinched by higher housing and borrowing costs. The lagged implications of restrictive monetary policy are becoming more apparent.
While headline figures indicate the labor market is on solid footing, certain sectors (ex. retail, construction) are realizing reduced job openings. A slower pace of growth could contribute to more moderate payroll gains thus further suppressing inflation.
Fed expectations of multiple cuts throughout the course of 2024 have been walked back to maybe one or two cuts in the back half of the year. Continued weakness in aforementioned areas could solidify small policy correction cuts but leave little potential for more drastic rate reductions.
Risk assets recovered lost ground over the month with most major stock and bond indices finishing positive. Year-to-date performance of balanced accounts remains supportive due to equity market strength despite small losses from high quality fixed income assets.
Last year’s equity market leadership spilled over into 2024 with U.S. large-cap stocks pulling indices higher. By many measures, U.S. stocks look expensive with more value found across smaller market-caps and within international geographies.
High quality bond indices have realized small losses so far in 2024 as yields have shifted upwards, especially in the belly of the curve. Credit exposure has been rewarded stemming from higher yields and modest spread tightening.
Recent data reaffirms the case for a soft-landing scenario where growth slows but isn’t derailed. Fully priced equity assets leave forward returns susceptible to unexpected, negative events. Relative to stocks, more attractive valuations within high quality fixed income offers portfolio protection while being paid to wait.
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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
