Earnings reports for the third quarter of 2018 came in strong, but the markets seemed to be increasingly concerned about a deceleration in the fourth quarter.
By Veronica Fulton, Research Analyst – GLOBALT Investments
The labor market delivered a disappointing jobs number for the month of April with only 266,000 gains – a little over a quarter of the one million jobs forecasted. Adding fuel to the fire, the unemployment rate rose to 6.1%. The labor force participation rate increased to 61.7%, but this number is still near its lowest level since 1977. With such abysmal numbers, one might expect a correction or, at the bare minimum, a reaction reflecting investors’ dismay. Instead, the market not only shrugged, but smirked, with the 10-year yield dropping -4 basis points and U.S. equity markets up across the board.
The Tax “Tail” Proposals Currently on the Table
Repeal 2017 Trump tax cuts
Incomes above $400K – The top tax bracket goes from 37.0% → 39.6%
Capital gains rate
Tax investment income at ordinary rates for those who earn more than $1 million in total (wage and investment) income.
Current top rate with surtax and ex state tax 23.8% → 43.4%.
Estate tax changes
Trump exemptions eliminated and exemption returns to 2009 levels.
Payroll tax
Limited deductions
Financial transaction tax
Raising the GILTI tax
Raising the corporate tax rate
21% to 28%
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Taxes are likely to change meaningfully especially for our higher net worth clients. We try to skate to where the puck is headed, not where it is. There are many investors who have resisted paying capital gains taxes and understandably so. It may make sense to avoid gains if you anticipate your heirs receiving a step up in basis upon transfer. And for some, paying taxes on passive incom
“Pay no attention to that man behind the curtain! The Great Oz has spoken!”
– The Wizard of Oz
We all know the scene. When the Tin Man, Scarecrow, Cowardly Lion, and Dorothy finally made their way to the Wizard of Oz, they all feared an all-powerful, omnipotent figure, granting wishes and issuing justice from a gilded throne. Come to find out, it was just a humbug working some controls behind the curtain.
This moment in that great story is reminiscent of the commentary from market prognosticators these days on the oft-misunderstood macroeconomic phenomenon of inflation. Hyperinflation, disinflation, deflation, stagflation, and any other play on pricing instability for goods and services has become the topic du jour over the past several weeks.
By Thomas A. Martin, CFA, Senior Portfolio Manager – GLOBALT Investments.
There’s the so-called “Big Rotation” out of bonds and into stocks. These days, it all starts with the virus, vaccine success and re-opening, the increasingly large snap-back rebound in GDP, and trying to handicap inflation and what the Central banks will do about it. Massive stimulus, pent-up demand and savings, supply chain kinks, low labor force participation it all seems pretty reasonable. Rates are on the rise because market participants think rates are on the rise.
Actually though, talk of the big rotation started well before COVID, and it all started with interest rates being lower than almost anybody could imagine at the time. That was when the 10-year U.S. treasury yield broached the 1.5% level in 2012, nearly ten years ago. 2013 was the first “taper tantrum,” and folks were certain that we’d kissed the bottom on rates for the 30-year cycle. An imminent rise in rates and a rotation int