Alert iconWarning: Unsupported web browser

In View no longer supports your current web browser version, which means some functionality may be limited. Please update your browser for the best experience before you log in.

close icon
Citi Private Bank logo

Unsupported browser

Our website no longer supports your current web browser version, which means you are no longer able to access this website. Please update your browser to continue.

Continue
Investment strategy
September 19, 2021
2 mins

How will the impending US fiscal drama impact markets?

September 19, 2021
2 mins
David Bailin
Chief Investment Officer and Global Head of Investments
Steven Wieting
Chief Investment Strategist & Chief Economist
SUMMARY

US tax and spending negotiations will deliver plenty of drama in the months ahead from COVID legislation to a debt ceiling vote. The aftermath may create potential winners in specific sectors but is unlikely to see either falling market interest rates or another cyclical surge.

  • The administration and Congressional Democrats have already scaled back the scope of several proposed tax hikes affecting corporate income, capital gains and carried interest, with more changes likely. However, prediction markets place the probability of passage of some form of sweeping tax legislation at 70%.
  • Equities most impacted by potential tax changes have rebounded, perhaps relieved by the absence of a corporate minimum tax in House legislation. Statutory corporate tax rates would rise just 5.5 percentage points after a 14-percentage-point cut at end 2017 (and likely even less on an effective basis). Individual income taxes – including a lower threshold for the top tax rate – carry a larger share of the revenue grab.
  • Partisan conflict could turn the annual debt ceiling ritual into one of the more troubling episodes. However, unlike 2011, Democrats control both houses of Congress, and could likely pass a debt ceiling increase by folding it into their reconciliation legislation with a simple majority.
  • The proposed gross fiscal expansion of $3.5 trillion over 10 years is modest compared to the nearly $5 trillion in emergency spending measures during the past two years.
  • Of course, government support for the economy will not come “cost free” for investors. Certain industries will see outsized benefits and costs from the redistribution of resources. Higher spending on US infrastructure and alternative energy may reinvigorate the performance of related shares.
  • US equity returns have been rapid year-to-date with the S&P 500 advancing over 20% following a similar gain in 2020. As we discussed last week, the rally has been strongly supported by what is likely to be 45% EPS gain this year. In 14 cases during the past seven decades, US equities fell in years featuring tax increases only once.
  • We would not alter our equity and bond allocations around US tax issues alone. That said, we will watch keenly for further clarity on potential winners and losers from resulting from legislation and other important market drivers.
CIO Strategy Bulletin

Insights

See our insights and the issues that matter for your wealth. 

View all insights
Capturing market upside in the age of COVID
David Bailin - Steven Wieting
September 12, 2021
Despite positive earnings news, equity market investors remain worried as the tailwinds of stimulus start fading. But we disagree with conjecture that current broad equity valuations are troubling and still expect gains, albeit at a slower pace with higher volatility.
Learn more about Capturing market upside in the age of COVID
Market recovery should offset decline in policy stimulus
Steven Wieting
September 1, 2021
Despite supportive announcements, we expect monetary policy stimulus to gradually diminish post-COVID. Hence, we have shifted our allocations within equity markets away from the riskiest firms to those with strong long-term prospects predicated on a wider economic rebound.
Learn more about Market recovery should offset decline in policy stimulus
‘Powell Play’: Investment implications of Fed’s policy
David Bailin - Steven Wieting
August 29, 2021
Fed Chair Jerome Powell’s recent speech focused on achieving maximum employment while downplaying inflation risk. An everything rally followed in its wake, but we believe such inclusive rallies will be increasingly rare deeper into a market recovery.
Learn more about ‘Powell Play’: Investment implications of Fed’s policy
Reviewing US, UK and China versus rising COVID prevalence
David Bailin - Steven Wieting
August 22, 2021
The rise of Covid and regulatory actions are impacting markets, but we think some concerns are overstated while others are underappreciated. We offer recommendations and delineate trends likely to impact key markets here.
Learn more about Reviewing US, UK and China versus rising COVID prevalence

Insights

See our insights and the issues that matter for your wealth. 

View all insights
If you are a Citi Private Bank client you can check the value of your portfolio by reviewing your monthly statements or, if you use Citi Private Bank In View, by navigating to the Account Overview page via Portfolio → Overview. If you have any queries please contact your usual Citi Private Bank representative.
FINRA icon
FINRA icon
FINRA's BrokerCheck - Learn more about Citigroup Global Markets Inc.'s background

INVESTMENT PRODUCTS: NOT FDIC INSURED. NOT CDIC INSURED. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE.

Citi Private Bank is a business of Citigroup Inc. ("Citigroup"), which provides its clients access to a broad array of products and services available through bank and non-bank affiliates of Citigroup. Not all products and services are provided by all affiliates or are available at all locations. In the U.S., investment products and services are provided by Citigroup Global Markets Inc. "CGMI"), member FINRA and SIPC, and also Citi Private Advisory, LLC ("Citi Advisory"), member of FINRA and SIPC. CGMI accounts are carried by Pershing LLC, member FINRA, NYSE, SIPC. CGMI, Citi Advisory and Citibank, N.A. are affiliated companies under the common control of Citigroup.

Outside the U.S., investment products and services are provided by other Citigroup affiliates. Investment Management services (including portfolio management) are available through CGMI, Citi Advisory, Citibank, N.A. and other affiliated advisory businesses. Neither Citigroup nor any of its affiliates provides tax or legal advice.

Notice at Collection | CA Privacy Hub | Tax Compliance & Regulatory Info | CGMI Financial statement | PSD2 API | MAS Electronic Payments Guidelines | Accessibility | Important disclosure | Terms & Conditions  | The Sustainable Finance Disclosure Regulation

To learn about CGMI and Citi Advisory investment business, as well as our relationship with you, please review our Form Client Relationship Summary.

© 2016 - 2021 Citigroup Inc. All Rights Reserved.

FINRA icon
FINRA icon FINRA's BrokerCheck - Learn more about Citigroup Global Markets Inc.'s background
Close Modal

You're about to leave the Citi Private Bank website

By clicking continue, you will visit a third-party website that is not owned or managed by us.

We have no control of the content, privacy or security beyond this point.

Continue

Stay on this page