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Is the sky falling (again)?

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There’s a lot going on in the world right now.

I thought this note was going to be about the $3.5 trillion budget deal or what to do with any child tax credits that may be heading your way.

But then global markets jolted on fears of new viral variants.

Is the sky actually falling?

Is the sky falling (again)?

Could a big correction happen?

After hitting record highs in previous days, markets tumbled Monday, sending the Dow 700+ points lower.1

Why?

Mostly fears of a COVID-19 resurgence caused by the delta variant that could derail the economic recovery.

Case numbers are rising globally, even in countries with high vaccination rates, and the surge could lead to a return to travel restrictions and business closures.2

Could these market jitters cause a 10%+ correction?

Absolutely.

Should we panic and freak out?

Definitely not.

Here are a couple of reasons why:

Summer months can bring higher volatility, perhaps because of lower trading volume, making bad news shake the market harder.3

We’ve had a pretty long winning streak, and corrections are part and parcel of a healthy market, especially when we’re near all-time highs.

New variants and higher case counts are a threat. However, vaccination rates are continuing to rise, and experts don’t think that we’ll see the devastating health outcomes we saw last year.4

Could the delta variant cause the economy to slow down?

It’s hard to say at this point. The rosy projections about the economy have been based on a swift return to normal from the shortest recession in history.5

If surging case counts cause a resumption of business and travel limits, we could definitely see a hit, especially in recovery-dependent industries like airlines, cruises, and hotels.

Supply chain issues are still causing materials shortages, creating delivery delays of goods, and potentially triggering slowdowns in industries such as building and construction.6

However, consumer spending is still very strong and the economy is in way better shape than it was last year.7

Bottom line: we could see some economic complications due to the delta variant and we’re likely to see more market volatility ahead, especially if economic data disappoints.

I’m keeping an eagle eye on the trends and will be in touch with you personally if your strategy needs to change.

Have questions? Please reach out. I’m always here to help.

Calmly,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. A massive $3.5 trillion budget deal is working its way through Congress.8 It’s got a lot of moving parts that may affect taxes, Medicare, and much more. I’ll reach out when we know more about how it’s likely to shake out.

1https://www.cnbc.com/2021/07/18/stock-market-futures-open-to-close-news.html

2https://www.reuters.com/business/healthcare-pharmaceuticals/delta-covid-variant-now-dominant-worldwide-drives-surge-us-deaths-officials-2021-07-16/

3https://www.nasdaq.com/articles/volatility-gauge-suggests-tactical-trading-during-summer-doldrums-2021-07-19

4https://www.nature.com/articles/d41586-021-01696-3

5https://www.cnbc.com/2021/07/19/its-official-the-covid-recession-lasted-just-two-months-the-shortest-in-us-history.html

6https://www.washingtonpost.com/us-policy/2021/07/20/biden-delta-coronavirus-economy/

7https://www.reuters.com/business/finance/us-retail-sales-unexpectedly-rise-june-2021-07-16/

8https://www.cnbc.com/2021/07/14/democrats-3point5-trillion-budget-package-funds-family-programs-clean-energy-medicare-expansion.html

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

The following posts and commentary are to be used solely as educational tools and do not contain investment advice. Investment advice must be tailored to a particular investor’s specific needs. None of the information contained should be construed to be investment advice. Individuals wishing to tailor a plan to their own needs should seek the help of a Registered Investment Advisor.

There is a high degree of risk in investing and trading. Independent Investment Advisors assumes no responsibility. Principles of Independent Investment Advisors may, at times, maintain directly or indirectly, positions in securities or derivatives mentioned in these comments.

The Financial Quarterly Q2 2021

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The Financial Quarterly

The Financial Quarterly

2nd Quarter 2021

Goran Ognjenovic
https://independentadvisorsnw.com
Independent Investment Advisors
(971) 350-8068

The second quarter of 2021 had a little bit of everything: vaccines, inflation concerns, jobs recovery, and more. Let's take a look at how markets performed and what we might look forward to in the months to come.

Looking Back

How Did Markets Perform Last Quarter?

S&P 500

Despite considerable volatility, the broader U.S. market grew strongly in Q2.1

NASDAQ

The tech-focused NASDAQ soared on the back of a sustained tech rally after pulling back in mid-quarter.1

DOW 30

Blue chip stocks delivered solid growth despite ongoing inflation and interest rate fears.1

Looking Ahead

What Can We Expect Three to Nine Months Ahead?

U.S. Economic Outlook

Negative Positive

The U.S. economy looks to be on a clear path for growth as the recovery continues.2

Equity Outlook

Negative Positive

Market fundamentals could support continued growth though volatility is very likely.3

Consumer Sentiment

Negative Positive

Consumer sentiment is very strong as Americans look forward to a post-pandemic world with ample cash in their pockets.4,5

Labor Market

Negative Positive

The labor market shows strength, though some sectors and regions may struggle to match workers with roles.6

Business Outlook Survey

Negative Positive

The business outlook looks solid as demand picks up, though inflation and supply chain issues may be obstacles.5

Fiscal Policy

Negative Positive

Government policies could support further growth, though waning stimulus spending and debt concerns may cause bumps.5

"Despite fears of runaway inflation and pandemic-related challenges, markets delivered a strong performance in Q2. While obstacles to growth remain, we expect the economic recovery to continue this quarter."

Bottom Line

Key Takeaways for Savvy Investors

Despite a lot of uncertainty around business reopenings, vaccination rates, and economic growth, equities delivered a solid performance in the second quarter, closing out the strongest first half since 2019.7

While the quarter closed strong, a number of dips, rallies, and ongoing volatility made it a bumpy road. We can expect more of this as the world continues to recover from the pandemic.

With all the uncertainty, it would not be surprising to see a market correction or pullback in the months ahead.

Overall, the economy seems positioned for strong growth in the second half of the year, though inflation worries, politics, and post-pandemic concerns may weigh.

Bottom line, I'm keeping a close eye on market conditions, as continued uncertainty could drive sudden changes.

Questions? Please reach out. I'd be happy to chat.

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
info@independentadvisorsnw.com

A tale of two infrastructure deals

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It appears we have a deal on infrastructure.

Maybe.

After weeks of grandstanding, posturing, and wrangling, it looks like a bipartisan infrastructure deal that both parties can live with is in the works.

Good news: no tax hikes. But you’ll want to read on because we’re not out of the woods yet.

Before we dive in, I want to wish you a very happy Fourth of July. Wherever you are, and whoever you’re able to spend it with, I sincerely hope it’s fun, relaxing, and meaningful.

Now, onto the politics.

The bipartisan deal (can’t call it a bill yet) finds $579 billion of common ground from President Biden’s original $2.25 trillion American Jobs Plan.1

It appears we have a deal on infrastructure.

It focuses on “hard” infrastructure — such as roads, bridges, rail, and public transit projects, as well as electric vehicle infrastructure and broadband internet — that both sides can agree on.

So, is it a done deal?

Not even close.

The current framework represents a compromise that makes no one happy, and there’s still a fair bit to hammer out (including how to pay for the plan).

The deal still needs to gather broad support in both parties, especially among those who think it’s too little or too much and might seek to scuttle the whole thing.

Fortunately, it doesn’t look like higher taxes are part of the deal. Though the math looks a little fuzzy from where I’m standing, it looks like funding sources could include repurposed pandemic funding, better IRS enforcement, and possibly digging through couch cushions for spare change (joking).1

So, that means my taxes won’t go up, right?

Not so fast.

There’s another bill on the table. And it’s a $1.8 trillion doozy.2

The second bill, called the American Families Plan, focuses on so-called “human” infrastructure and contains many Democrat-backed priorities like childcare, climate change, health care, and education.3

Basically, the initiatives that couldn’t get Republican support are packaged up in a separate bill.

It looks like the Democrats are planning to pass that bill through a reconciliation process that doesn’t require Republican support to get through Congress.

Inside that bill are the tax increases we’ve been on the watch for. Higher taxes on wealthy individuals and corporations, as well as eliminating the step-up basis on inherited assets, among other tax hits.4

Since the bills are independent, it’s really not certain yet which (if either) will pass. Or when.

Will one pass and not the other? Will both grind to a halt this summer?

Hard to say.

What does all this mean?

That depends on where you’re standing. For industries expecting to benefit, it means an influx of tasty government cash.

For those worried about America’s crumbling infrastructure, it represents some critical moves in the right direction.

For those concerned about the spending spree the government’s been on (and how we’re going to pay for it all), it’s another brick in a looming wall of debt that will eventually come due.

Bottom line, it’s not nearly over yet. I strongly suspect the coming weeks will be full of more politicking, more grandstanding, and more arm twisting.

I’ll reach out when I know more.

Now, go enjoy your summer. You deserve it.

Infrastructurally yours,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

1https://news.bloomberglaw.com/environment-and-energy/a-win-for-roads-and-no-tax-hikes-infrastructure-deal-takeaways

2 https://www.cnbc.com/2021/04/28/biden-american-families-plan-whats-in-it.html

3https://www.cnbc.com/2021/06/27/infrastructure-gop-senators-say-deal-can-go-forward-after-biden-walkback-.html

4https://taxfoundation.org/american-families-plan/

Chart source: https://news.bloomberglaw.com/environment-and-energy/a-win-for-roads-and-no-tax-hikes-infrastructure-deal-takeaways

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.

The following posts and commentary are to be used solely as educational tools and do not contain investment advice. Investment advice must be tailored to a particular investor’s specific needs. None of the information contained should be construed to be investment advice. Individuals wishing to tailor a plan to their own needs should seek the help of a Registered Investment Advisor.

There is a high degree of risk in investing and trading. Independent Investment Advisors assumes no responsibility. Principles of Independent Investment Advisors may, at times, maintain directly or indirectly, positions in securities or derivatives mentioned in these comments.

Getting it wrong?

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What happens when the predictions are wrong?

Is it time to panic?

Is it time to ditch our strategy?

It’s a fascinating question because it cuts right down to the question of what it means to live in an uncertain world.

Humans are wired to dislike uncertainty.1

And we’re used to a fair amount of (often unwarranted) certainty in the models and paradigms we use to make sense of the world around us.

We’re so attracted to certainty that when economic forecasts and reports come back with “surprises” (also known as being wrong) we tend to freak out.

Especially when the news trumpets every weird bit of data like it’s a huge deal.

Getting it wrong?

Over the last few weeks and months, we’ve had a lot of “surprise” reports.

Inflation surprises.

Job market surprises.

Housing market surprises.

Economic growth surprises.

Why are we so surprised?

In a year like 2021, the margin for error is greater than ever.

Predictions, forecasts, and expectations that are based on averages, trends, and other backward-looking methods are ill-equipped to handle the outliers and oddities of a year that’s unlike anything that has come before.

When in history has an entire global economy simply come to a halt?

And then arthritically restarted with many creaks and groans.

To my knowledge, it’s never happened before.

Of course the data is going to have surprises.

We’re probably going to get a lot of things wrong.

I can’t wait for the best-sellers written about all the ways we could have done things better.

So. What does that mean for you and me?

Crystal balls are out of commission.

Surprise is the order of the day, the week, and the year.

The models haven’t caught up yet (though that’s not stopping anyone from issuing very confident predictions).

So we’re being careful and looking out for the opportunities (as well as the hidden pitfalls) in these uncharted waters.

We’re cultivating patience, gratitude, and our ability to make good decisions with incomplete information.

To staying frosty,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. So many folks are making big life changes. Are you? Anything you’re excited to share? Hit “reply” and let me know.

1https://www.psychologytoday.com/us/blog/the-right-mindset/202002/why-uncertainty-freaks-you-out

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

The following posts and commentary are to be used solely as educational tools and do not contain investment advice. Investment advice must be tailored to a particular investor’s specific needs. None of the information contained should be construed to be investment advice. Individuals wishing to tailor a plan to their own needs should seek the help of a Registered Investment Advisor.

There is a high degree of risk in investing and trading. Independent Investment Advisors assumes no responsibility. Principles of Independent Investment Advisors may, at times, maintain directly or indirectly, positions in securities or derivatives mentioned in these comments.

Tax worries? Info inside…

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Tax worries? Info inside…

Are you tired of hearing about taxes?

Me too! But here we are. Let’s dive in.

So, we’ve got dueling infrastructure bills, plus a big proposed budget with lots of spending (and higher taxes inside).

That’s a lot of expensive legislation on the table.

Tax worries?

What’s going to happen next?

The Democrats and Republicans seem pretty far apart on their respective infrastructure deals, which opens up the possibility that Democrats could go it alone and try to pass a package entirely without Republican support.1

That would be very difficult to accomplish.

It’s also possible that both parties could align around a smaller bill and then the Democrats attempt to pass any extras through budget reconciliation.

Bottom line, we don’t have enough clarity to know what a final infrastructure deal will look like. Given the political hurdles, the debate might drag on through summer.2

How likely are taxes to go up?

Well, my crystal ball’s about as clear as mud right now, but let’s break down what we see on the table.

President Biden’s $6 trillion proposed budget offers a lot of spending and higher taxes to pay for it.3 None of these tax hikes are a surprise as they are in line with what Biden has promised before.

Wealthy taxpayers are looking at a higher top income tax rate, higher capital gains taxes, and the loss of the step-up basis on inherited assets.

Corporations are also in the line of fire, facing an increase in corporate tax rates, which could affect profitability.

That’s currently what’s on the table.

However, Biden’s desire to raise taxes faces major headwinds (even inside his own party). His proposed budget is very much a wish list and will face challenges getting approved by legislators.4

It’s very possible that some (or all) of these proposed tax hikes will get axed during negotiations.

How likely is it that any tax hikes will be retroactive?

One of the big shockers coming out of recent tax news is that the higher capital gains taxes could be made retroactive to April 2021.5

There is historical precedent for this as it has happened a number of times before.6 However, retroactive tax changes are often for tax decreases.

I think it’s very unlikely for an increase to be retroactive. There is too much opposition from both sides of the aisle.

Bottom line, I do think that higher taxes are coming. But I’m not sure that they will be as big or far-reaching as the Biden administration wants.

With so much uncertainty around taxes, now is not a time to panic, but to think carefully and make adjustments where needed.

I’ll reach out if there’s anything specific we need to discuss.

Yours in tax uncertainty,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. There’s a lot going on in the economy and Washington. I’ll keep you updated along the way, but if you have any questions or concerns, please reach out. That’s why I’m here.

1 https://www.usatoday.com/in-depth/news/politics/2021/05/30/biden-infrastructure-plan-sides-odds-social-infrastructure/7451554002/

2 https://www.rollcall.com/2021/05/28/budget-release-starts-a-process-that-will-run-through-summer/

3 https://www.cnbc.com/2021/05/28/biden-budget-reiterates-top-capital-gains-tax-rate.html

4 https://www.foxbusiness.com/politics/bidens-capital-gains-tax-hike-proposal-faces-democratic-headwinds

5 https://www.marketwatch.com/story/biden-plans-retroactive-hike-in-capital-gains-taxes-so-it-may-be-already-too-late-for-investors-to-avoid-it-report-11622133899

6 https://www.natlawreview.com/article/capital-gains-rate-historical-perspectives-retroactive-changes

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

The following posts and commentary are to be used solely as educational tools and do not contain investment advice. Investment advice must be tailored to a particular investor’s specific needs. None of the information contained should be construed to be investment advice. Individuals wishing to tailor a plan to their own needs should seek the help of a Registered Investment Advisor.

There is a high degree of risk in investing and trading. Independent Investment Advisors assumes no responsibility. Principles of Independent Investment Advisors may, at times, maintain directly or indirectly, positions in securities or derivatives mentioned in these comments.