Every four years we receive similar requests from clients on both sides of the political aisle, which can basically be boiled down to “what happens if the other side wins?” The good news about elections is that the stock market historically has not picked a favorite political party, so investors should not assume that the outcome of the election will directly influence their portfolios. However, there are a few things investors should be paying attention to right now, and we picked three for you to consider.
Political parties are expected to affect our tax rates. President Biden maintained the Trump tax code, which has been the friendliest tax code in my adult lifetime. Given that it’s possible that any new president could champion updates to the tax code, it makes sense to take advantage of the current friendly tax code while you can. We have been working with our clients on identifying opportunities such as Roth conversions, harvesting gains in non-retirement accounts, and using the lifetime gift tax exclusion to reduce an estate. If you haven’t done so already, this is a great time to talk to your advisor, CPA, and estate attorney about whether there are any opportunities you need to secure in 2025.
The Fed decreased interest rates by 0.50% in September, and the markets think rates will be decreased by another 0.50% by the end of the year. The drop in interest rates is a really big deal – for a few reasons. The financial markets are rallying, which may be good for your portfolio. Rate decreases signal that inflation has subsided, which allows people to predict their spending better. More importantly, it directly impacts the cost of loans, which has an amplifying effect on big ticket items like cars, homes, and capital costs for businesses. Rates are expected to decrease by another 1% in 2025 and to ultimately land at 3% in 2026. If you can hold off on buying a house, you may lower the cost of your total mortgage and your monthly mortgage bill by waiting until next year to make your move.
The push-pull of the current financial environment. The financial environment has both positive and negative influences right now. The good news is that this is always true, but it can still be perplexing to know which influences will weigh heavier on your financial success. Positive influences include waning inflation, decreasing interest rates, new highs for the US stock market, a recovering bond market, and a real possibility of an economic “soft landing” after the recent inflation spike. Negative influences include an escalating conflict in the Middle East, unemployment just starting to tick back up, post-inflation high prices, and a tight housing market.
We are knee-deep in our market and economic analysis for Risks and Opportunities, our quarterly market report, which will feature deeper analysis of the current economy and financial markets. If you have any suggestions for topics you want us to write about or explain, drop us a line at hello@bfsadvisorygroup.com.