“Profits & Preschool"

MONETARY

• In his recent interview with 60 Minutes, Fed Chairman Jerome Powell talks about the current state of the economy, as well as the Federal Reserve’s high expectations for continued economic growth in 2021¹
  • (Powell) “We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming in much more quickly.”¹
  • Specifically, in reference to GDP growth and Unemployment, (Powell) “what they’re forecasting is growth for this year in the range of 6% or 7%, which would be the highest level in, you know, 30 years. Or even maybe a little bit higher. And forecasting unemployment to move down substantially from 6%, where it is now, maybe to between 4% and 5%.”¹
  • Chairman Powell also referenced the ever-changing environment surrounding global financial risks in general and how they differ now as opposed to earlier days. (Powell) “And I would say that the risk that we keep our eyes on the most now is cyber risk. That’s really where the risk I would say is now, rather than something that looked like the global financial crisis.”¹
• Federal Reserve’s most recent Beige Book publication noted that overall economic activity continues to accelerate to a moderate pace, principally driven by strong consumer spending across an array of areas²
  • Increased vaccinations and loosening COVID-19 restrictions were noted as large contributing factors to pickups in tourism and leisure spending²
  • Report notes that despite widespread supply-chain disruptions, manufacturing activity continues to expand²
  • Single-family home prices continued to increase driven by a combination of strong demand, low inventories, and cost-pressures faced by home builders. Conversely, commercial real estate was noted as remaining relatively weak²
  • Overall job growth increased moderately, with manufacturing, construction, and leisure & hospitality being large sources of job growth. Some contacts noted absenteeism was down prior to earlier in pandemic, although firms are still offering increased pay as a means to attract and retain workers²
  • Prices were largely seen as having increased, with specific areas such as metals, lumber, food, and fuel costs experiencing robust increases. Cost increases were attributed to a combination of supply-chain disruptions and weather-related events²

 

FISCAL

• Separate from the American Jobs Plan, Biden Administration formally announces the second phase of Infrastructure spending known as the American Families Plan. The American Families plan is expected to cost $1.8T over a period of 10 years. Some highlights of the plan include^3,4
  • Universal pre-school for all 3- & 4-year-olds, and 2 years of free community college^3,4
  • Creating a national comprehensive paid family and medical leave program^3,4
  • Extensions of various tax breaks including the Child Tax Credit, Earned Income Tax Credit, and the Child and Dependent Care Tax Credit^3,4
  • To pay for the American Families plan, the Biden Administration is proposing the following:
    • Increase the top income tax rate to 39.6% from the current level of 37%^3,4
    • Increase the top capital gains tax rate to 39.6% from the current level of 20%^3,4
    • Eliminating “step-ups” in cost basis when passing on appreciated assets to heirs that have gains in excess of $1M^3,4
    • Ending real estate tax breaks that allow investors to defer taxation when exchanging property for gains greater than $500k^3,4
    • Expanding the 3.8% Medicare tax to new types of income including active income earned by entities like S corporations and partnerships whose income is greater than $400,000^3,4
    • Doubling of IRS enforcement staff over 10 years which is projected to reduce underreporting^3,4
  • Republican lawmakers planning numerous Byrd Rule objections related to the passage of the initial phase of Infrastructure spending, the American Jobs Plan⁵
    • A primary point of objection is likely to come regarding the Protecting Right to Organize Act that is embedded in the legislation. The PRO Act would curb state right-to-work laws and also penalize employers who interfere with union drives⁵
    • Another source of objection is likely to come regarding provisions which would expand access to long-term care services under Medicaid, thereby increasing Medicaid authority⁵
    • The elimination of “exclusionary zoning laws” is another expected point of objection, whereby laws currently require minimum lot sizes, mandatory parking requirements, and various prohibitions on multi-family housing⁵

 

GEOPOLITICS

• In an effort to prevent international profit-shifting related to the proposed increases in taxes related to infrastructure spending, Treasury Secretary Janet Yellen calls for a global minimum corporate tax rate⁶
  • Biden Administration has proposed measures that would penalize other countries who do not implement a global minimum tax rate by more heavily taxing those countries’ subsidiaries in the United States⁶
  • Skepticism remains as to whether or not such a global agreement will be feasible. (Sen. Pat Toomey, R-Penn.) “This effort will likely fail and even if there is some sort of agreement, it will be non-binding because it is not a treaty”⁶
• USTR declares that China has not fulfilled its Phase 1 Intellectual Property commitments made during initial trade deal formed under the Trump Administration⁸
  • Chinese regulators have drafted potential amendments to local laws that would amend existing Patent, Copyright, and Criminal law, however these amendments have not been formally put into effect⁸
  • (USTR) “…these steps toward reform require effective implementation and fall short of the full range of fundamental changes needed to improve the IP landscape in China”⁸

 

VACCINE

• CDC resumes use of Johnson & Johnson COVID-19 vaccine after a temporary pause related to blood clotting issues primarily in women patients under the age of 50⁷
  • CDC notes that women under the age of 50 are at increased risk of thrombosis with thrombocytopenia syndrome (TTS), a condition which the CDC describes as having blood clots with low platelets⁷
  • CDC also noted that the risk of (TTS) has not been seen in either the Pfizer/BioNTech or Moderna vaccines⁷
• As of April 30, 20201 there have been over 240M vaccines administered in the United States⁹
  • CDC estimates have roughly 101.4M Americans fully vaccinated which would represent about 30.5% of the population⁹

 

[See Below For Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

 

ANNOTATIONS

1. CBS News. “Fed Chair Jerome Powell tells 60 Minutes America is going back to work”. April 11, 2021
2. Federal Reserve. “The Beige Book: Summary of Commentary on Current Economic Conditions”. April 14, 2021.
3. The Wall Street Journal. “Biden to Propose $1.8 Trillion Plan Aimed at Families, Tax Hikes for Wealthiest Americans”. April 28, 2021
4. White House. “Fact Sheet: The American Families Plan”. April 28, 2021
5. The Hill. “GOP eyes new strategy to derail Biden infrastructure plan”. April 20, 2021
6. Associated Press. “Yellen calls for minimum global corporate income tax”. April 5, 2021
7. CDC. “CDC Recommends Use of Johnson & Johnson’s Janssen COVID-19 Vaccine Resume”. April 25, 2021
8. Reuters. “U.S. says China has fallen short on ‘Phase 1’ intellectual property commitments”. April 30, 2021
9. CDC. “COVID Data Tracker”. April 30, 2021