Higher growth and inflation held policy rates and bond yields at elevated levels stemming from recent hiking schedules. As growth estimates were marked up, expectations for Fed cuts declined although some form of cut(s) is still expected this year.
The global economy finds itself at an inflection point where growth is cooling along with inflation. Powerful fiscal and monetary policy powered above average growth over the past two years but left a debt overhang with uncertain implications.
The top 10 stocks in the S&P 500 now account for well over a third of the index, among the highest levels in history. While hard to refute the dominance and scope of top businesses, market leadership has historically been cyclical and often consolidates following extreme periods.
Corporate fundamentals remained positive with much of U.S. EPS growth coming from a recovery in profit margins, versus revenue growth in prior years. Positive results outside of the top portion of the market could power additional breadth.
International equities relative valuations are at historical lows relative to U.S. stocks. Starting valuations are only part of the equation for anticipated forward returns but paired with the potential for future dollar weakness may present tailwinds for non-U.S. stocks.
Higher base rates offer support for higher future returns from high-quality fixed income asset classes. Credit spreads remain tight offering less incentive to go outside of investment-grade, although specialty areas (ex. securitized, private credit) present more opportunity.
After a slow start, municipals recovered lost ground over the quarter yet continue to present compelling tax-equivalent yields. Summer technicals should help with near-term tailwinds while fundamentals are supportive.
The ground is starting to thaw within the private real estate space as cap rates have stabilized and key sub-sectors have supply constraints (ex. grocery-anchored retail, single family housing). Transaction activity could lead to renewed price discovery and the potential for capital appreciation, in addition to income.
The first half of 2024 has shaped up to be supportive for investment assets. With election and geopolitical uncertainty on the rise, the back half could offer additional volatility to which the best defense is diversification and ensuring your investment portfolio is properly aligned to your long-term financial goals.
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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
