Tax and Rate Cuts in an Election Year
On the Horizon: Navigating Through 2024's Fiscal Changes
"The economy's strong. The labor market's strong. Inflation's coming down. There's no reason why that can't continue."
- Federal Reserve Chair Jerome Powell's comments from his interview on 60 minutes
This week showed how quickly even sharp downturns can give way to new highs.
We remain optimistic for long term investors.
Without a clear directional signal, we believe daily liquidity becomes the most important factor driving markets.
While a short term pullback in the month of February is possible, we believe our latest model captures a supportive backdrop.
Our model is based on the continued drawdown in reverse repo boosting the market to new all time highs this year.
As long as the reverse repo levels are unrestrictive, we believe investors will continue boosting small recent secular winners, stretching successful themes with short term relative strength.
We All Agree on Something
The likelihood of both tax cuts and rate cuts coming in 2024 is climbing.
The House of Representatives passed the Tax Relief for American Families and Workers Act of 2024 by a wide bipartisan vote of 357 to 70.
The bill will now go to the Senate.
This concise, 84-page bill is primarily focused, leaving little room for fluff.
The most contentious issue likely to spark debate in the Senate concerns provisions related to Taiwan, which may align with existing Senate bills advocating for increased Taiwanese protections.
As we mentioned in 3 Upcoming Tax Changes That Could Affect Your Wallet we believe the 3 most impactful tax law changes could be:
Expansion of the Qualified Business Income Deduction (QBID)
Modification of Research and Development (R&D) Expensing
Increase in the Depreciable Basis for Qualified Property
GovTrack indicates a 38% chance of the bill passing in its present version. Source.
However, given the unusual bipartisan support and electoral year pressures, we think the odds are much higher.
Not if, But When
Interest rate cuts are also coming.
Good Judgement Open forecasters assign a 67% chance that the Federal Reserve will announce a cut in the federal funds rate before mid-June 2024.
GJ Open is a platform for improving forecasting abilities and connecting with others. Users predict future events, assess their prediction accuracy, and see how their skills stack up against a diverse community. It's open to everyone, not just financial experts.
This prediction aligns with the sentiments expressed by economic leaders and market enthusiasts alike.
Leading economists and analysts from across Wall Street have recently voiced support for rate cuts in 2024, citing improved economic indicators and sustained declining inflation.
Putting it all together
The convergence of these factors—a strong economy, a robust labor market, subsiding inflation, and legislative actions—suggests a fertile ground for continued economic prosperity.
The anticipated tax and rate cuts may very well serve as catalysts, propelling the market to new heights.
Factors that might shift our optimistic (bullish) assumptions to pessimistic (bearish) include:
Larger than expected buildup in the Treasury General Account
Sharp drop in available treasury issuance
Forced deleveraging by a major market speculator
Restrictive shift in policy from the Bank of Japan to combat inflation
We expect a significant decrease in treasury issuance soon, though it's not an immediate concern for a few months.
There's every reason to believe that the economic strength we've seen can indeed continue.
Thank you for reading and I am grateful and humbled to be able to learn, grow, and invest alongside you at Tuttle Ventures.
Vision, Courage, and Patience leads to successful investing.
Darin Tuttle, CFA
NOTE - This is not investment advice. Do your own due diligence. I make no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information contained in this report. Any assumptions, opinions and estimates expressed in this report constitute my judgment as of the date thereof and is subject to change without notice. Any projections contained in the report are based on a number of assumptions as to market conditions. There is no guarantee that projected outcomes will be achieved. Unless there is a signed Investment Management or Financial Planning Agreement by both parties, Tuttle Ventures is not acting as your financial advisor or in any fiduciary capacity.