The U.S. economy remained resilient throughout the third quarter, with U.S. GDP growing 2.5% according to the initial Bureau of Economic Analysis estimate. The growth was driven by strong consumer spending, a key sign of strength for the consumer-driven U.S. economy.
The unemployment rate was unchanged from September at 4.1%, despite lower than expected job growth due to recent hurricanes and labor strikes.
U.S. equity markets, which experienced heightened volatility and struggled to find direction in October, rallied throughout election day and continued to surge after the announcement of Donald Trump’s reelection.
Expectations of broad deregulation leading to heightened growth provided a boost across many different sectors, including financials, energy, and industrials.
Fixed income markets, on the other hand, were negative for the month as yields in the belly and longer end of the curve crept higher, likely influenced by expectations for higher growth and inflation with little mention of future efforts to reign in an expanding deficit.
Bond market weakness continued post-election as investors assessed the potential impacts of upcoming policy changes.
The U.S. dollar, which weakened throughout the third quarter, reversed trend in October and strengthened into and post-election, due in part to the expectation of rates remaining higher for longer.
Trump's proposed tariffs could reintroduce inflationary pressure into the U.S. economy and further complicate the path forward for the Fed, leading some strategists to temper their expectations for the pace of interest rate cuts through the end of 2025.
With inflation continuing to moderate, markets had priced in a 100% chance of a 25 bp rate cut leading up to the November meeting of the FOMC, which, at its close, Fed Chair Powell announced would in fact take place.
As with any presidential election there may be short-term volatility across markets as new policies are implemented and existing ones are expanded or curtailed, but investors are usually best served by focusing on long-term investment strategies and 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
