If U.S. investors were feeling anxious about global events it was difficult to detect,as big rallies in U.S. equity and credit markets drove stock prices higher and interest rates lower.
U.S. equity markets, as measured by the S&P500, reversed three months of losses rising 9.9%.
U.S. fixed income markets, after six consecutive monthly losses, bolted higher gaining 4.6%.
U.S. 3-month Treasury yields retreated only modestly, declining 15bps from ~5.6% to ~5.5%.
International markets kept pace, with developed and emerging markets gaining 8.2% and 7.8% respectively.
Inflation continues to fall toward central bank targets in both the U.S. and Europe.
Financial conditions eased materially as rates fell and credit spreads narrowed across corporate bonds.
While the odds favor a soft landing for next year, it is likely not by a large margin. Per GDPNow, growth estimates for Q4 are now running at 1.2% versus 5.2% in Q3. Consensus estimates for CY 24 GDP growth are 1.7% and CPI 2.5%.
In a recent speech, Fed Chair Powell indicated “we are getting what we wanted to get” and indicated that he sees U.S. economic and job growth continuing but at a moderating pace.
Futures markets now anticipate the Fed will begin rate cuts in March 2024 and rates will decline 100bps towards 4.0% to 4.25% by December 2024.
Internationally, developed markets continue to display mixed growth with Europe near 1.0% and China experiencing slowing growth due, in part,to falling real estate values.
Globally, PMIs are strongest in emerging markets such as India and Mexico and weakest in Germany and France.
Economy
The U.S. economy continues to grow, albeit, at a slowing pace. For the current quarter, growth estimates are running near 1.2% versus a blistering 5.2% in Q3. Industrial production and residential investment remain flat to moderately negative, while retail spending, non-residential fixed investment, housing starts, and government expenditures remain positive contributors to growth. Job growth continues to moderate as non-farm payrolls saw 150k new jobs added, well below levels from a year ago. Unemployment remained steady at 3.9%, ticking up from 3.8% in October. Looking forward, the soft-landing scenario is most sensitive to moderating consumer spending as households are bogged down by higher debt service fees, mortgage and/or student loan repayments, and rising credit card balances. Federal government funding will return as a hot button issue heading into next year as Congress manages (or mismanages) short term budget measures. For now, the current continuing resolution funds the government until January 19, 2024.
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
