Market briefs
Breaking insights on the economy, market volatility, policy changes and geopolitical events
Proposed tax hikes and what they might mean for you
THE ADMINISTRATION’S $6.9 TRILLION 2024 BUDGET, released on March 9, includes $4.5 trillion in income, corporate, and estate and gift tax increases over 10 years.1 It’s estimated the hikes will reduce the growth of the deficit by $2.9 trillion over that period. “While the budget has little chance of Congressional approval as is, it will likely frame negotiations over the debt ceiling in the coming months,” notes Mitchell Drossman, head of National Wealth Strategies in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank.
“Some of the proposed tax increases are new, but most are recycled from last year’s budget,” Drossman says. “There are also many proposed tax cuts.” A recent CIO tax alert, “Income and Transfer Tax Proposals in Administration’s Fiscal Year 2024 Budget” details the plan. Here are some highlights:
Individual income tax proposals
The budget would reimpose the top 39.6% income tax rate for married couples with taxable income greater than $450,000 (or $400,000 for individuals). Another major change: For taxpayers with income higher than $1 million (married or single), capital gains would be taxed at the 39.6% ordinary income tax rate, rather than the lower capital gains tax rate.
Among other increases, “The current 3.8% investment income surtax would rise to 5% for investment income over $400,000, and the types of income subject to the tax would significantly expand,” Drossman says.
Wealth-transfer tax proposals
A host of proposed changes would affect taxes on wealth transfer, whether through lifetime gifts or as part of an estate. One prominent change could limit the long-term effectiveness of generation-skipping trusts (GSTs), a popular means for families to pass wealth down to grandchildren and subsequent generations while reducing potential estate taxes. “Under the proposal, GSTs would be limited to no more than two generations below the taxpayers,” Drossman says.
Corporate tax proposals
Many businesses, too, would see their taxes rise. Most notably, the top corporate income tax rate would rise to 28% (from 21%) and the tax on overseas profits by U.S. companies would double, to 21%. The plan would also increase the tax rate on corporate stock repurchases to 4%.
Expanded tax credits ease the pain
“It’s not all increases,” Drossman says. “The proposed budget also includes an enhanced child tax credit, an expanded earned income tax credit, generous health insurance premium tax credits and increased employer-provided childcare tax credits for businesses, to name a few.”
While these changes are currently just proposals, now might be a good time to familiarize yourself with them so that you can begin to plan ahead for tax efficiency in 2024. Read the report for full details and speak with your tax professional about what they might mean for you. For insights on investing tax-efficiently, read “How to Be a Tax-Aware Investor” and check in with your financial advisor.
1 CNN, “Biden’s Budget Lays Groundwork for High-Stakes Battles Ahead,” March 9, 2023.
Ready to get started now? We are, too.
Navigating current volatility
Listen to the audiocast below for insights from Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank, on what’s driving market uncertainty, the path to market stability, key indicators to watch and how investors can prepare for steadier times ahead.
Tune in regularly to the CIO Market Update audiocast series for the news and insights you need to navigate today’s fast-moving markets.
What women have in common with the U.S. economy
“WOMEN’S POWER OF THE PURSE is simply staggering, globally,” says Lauren Sanfilippo, senior investment strategy analyst with the Chief Investment Office, Merrill and Bank of America Private Bank. Last year, women’s income topped $24.5 trillion globally.1 “That puts women on a par with the total size of the U.S. economy,” she adds. “Simply put, women have become one of the largest economic forces in the world.”
Some other milestones to celebrate this International Women’s Day and throughout the year: The number of female CEOs — 53 — is at an all-time high.1 Women are more likely to be enrolled in college today than men, and degree-holding women are more likely to be employed than men with higher ed degrees.1 They are, however, vastly underrepresented in the STEM professions, which may offer some of the fastest growing and highest paying jobs of the future, notes Sanfilippo. Clearly, more progress is needed. According to the United Nations, which measures progress towards gender equality as part of its Sustainable Development Goals, more than 3 billion girls and women lived in countries with “poor” or “very poor” scores in 2020.1
Ways to invest in women’s spending power
Achieving gender equality benefits everyone, says Sanfilippo. Research has shown that women invest a larger portion of their income in their families and communities than men.2 But that’s not all. “Women’s economic strength has clear investment implications,” she adds. Companies that cater to women — and value their talents in the workforce — are best positioned for long-term growth,” she believes. Global brand leaders across multiple sectors, from automobiles to technology and high-end luxury, can benefit from women’s spending power. And on a global level, nations that prioritize gender equality should experience stronger long-term growth rates.
To learn more about women’s economic progress — including which countries are making the most progress in reaching the UN’s gender equality goals — read “Reality Check: The Promise and Plight of Women.” For more insights, visit our women’s resource hub and sign up to receive our latest women’s content.
1 “Reality Check: The Promise and Plight of Women,” Chief Investment Office,” March, 2023.
2 “Investing in Women and Girls,” OECD.org, 2018.
Early 2023 surprises hint at improving markets ahead
DESPITE ALL THE TALK about high inflation, global turmoil and the possibility of recession, “so far it’s been a surprisingly good year for many investors,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
Among the surprises: U.S. stocks posted strong gains in January, major global indexes started the year up 5% or more, and the Federal Reserve’s (the Fed’s) .25% rate hike in February was about half the size of December’s increase.1 “It’s a sign of Fed confidence that inflation is finally moderating,” believes Hyzy. “We’re not out of the woods yet, and we still think a mild recession is likely later this year or in early 2024,” he says. “But what we are seeing is a glimpse of a new and improved economic and market cycle ahead.”
In the video above, Hyzy offers a two-part investing approach to help investors prepare for a time of greater stability 12 to 18 months out and manage investments in the meantime. “As you look ahead for potential opportunities,” Hyzy says, “remember it’s important to stay diversified across different types of assets and within each asset class. Market direction can change quickly — many times without clear signals.”
Read “Distortions Are Rebalancing and Markets Are Applauding” for more actionable insights from the Chief Investment Office (CIO), and tune in to the CIO Market Update audiocast series for weekly commentary from our analysts.
1 The Conference Board, “Fed Hikes by 25 BPS, but Indicates Terminal Rate Is Close,” February 1, 2023.
Could debt ceiling negotiations slow economic recovery?
WHEN THE U.S. GOVERNMENT HIT ITS DEBT CEILING on January 19, the Treasury Department began using “extraordinary measures” to enable the government to pay its bills.1 While these measures could keep the government open for several more months as a divided Congress negotiates a new debt limit — and the markets so far seem not to be affected — investors should be aware of the potential longer term impact the Treasury’s moves could have on the economy.
“The debt ceiling is a light gray cloud for now, likely to grow darker as negotiations unfold in a more assertive way,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. One concern is that the measures the Treasury must take to honor its obligations run counter to the efforts the Federal Reserve (the Fed) has been making to tame inflation, notes Robert T. McGee, head of CIO Macro Strategy in the Chief Investment Office for Merrill and Bank of America Private Bank. A recent Capital Markets Outlook report from the Chief Investment Office (CIO) lays out the details.
What the debt ceiling is — and why it matters
Established by Congress more than a century ago, the debt ceiling (or debt limit) determines how much money the government can borrow to meet existing obligations, ranging from salaries for government employees and payments to government contractors to national debt interest.2 When the limit (currently nearly $31.4 trillion) is reached, Congress must raise or suspend the limit in order for the government to pay its bills. This has happened 78 times since 1960, according to the Treasury Department. If the limit is not adjusted, the government may partially shut down — this happened most recently for 35 days in December 2018 and January 2019, the longest shutdown on record.3
As Congress debates the 2023 debt ceiling, “the Treasury must shuffle funds to meet government obligations and avert a shutdown,” says McGee. While not a permanent solution, the Treasury estimates it can provide the necessary money to pay bills through June, though some economists consider that a conservative estimate.
Economic ripple effects
The Treasury’s shuffling of funds adds liquidity to the banking system at a time when the Fed is attempting the exact opposite — tightening the money supply and raising interest rates in order to keep inflation under control. When the debt situation is ultimately resolved, the Fed may have to start tightening all over again, McGee says. Should the economy enter a recession this year, as many observers expect, the need to further tighten would leave the Fed with less ability to take steps to help stimulate the economy into recovery.
What this could mean for investors
“Uncertainty around the debt ceiling adds a new layer of concern,” says Hyzy. “But we still expect a new long-term bull market to take shape next year.” Adds McGee: “As the debt ceiling drama plays out, current financial conditions favor long-duration bonds.” A delayed U.S. economic recovery could favor non-U.S. stocks, particularly those likely to benefit from China’s COVID reopening. “The current situation also calls for a high level of diversification and higher quality across asset classes,” McGee says.
1 CNN, “US Hits Debt Ceiling, Prompting Treasury to Take Extraordinary Measures,” Jan. 19, 2023.
2 U.S. Department of the Treasury, “Debt Limit.”
3 Committee for a Responsible Federal Budget, “Q&A: Everything You Should Know About Government Shutdowns,” Dec. 12, 2022.
To make the most of new tax laws, start 2023 tax planning now
THE APRIL 18 TAX DEADLINE is just three months away. But, as you calculate how much you owe for tax year 2022, it’s not too early to start planning ahead for tax year 2023. “In many cases, beginning-of-year tax planning can be more effective than end-of-year strategizing,” says Mitchell Drossman, head of National Wealth Strategies in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank.
That’s especially true this year, with the passage of two pieces of legislation — the Inflation Reduction Act and the SECURE 2.0 Act of 2022 — that create potential new tax credits and deductions for taxpayers going forward. “Your tax specialist and financial advisor can help you consider best-, worst- and base-case financial and tax projections, with periodic updates throughout the year,” Drossman suggests.
How new tax laws could change your calculations
Inflation’s impact on taxes. “Thresholds for ordinary income and capital gains taxes, the standard deduction, IRA contribution limits and retirement contribution caps all have risen for 2023, thanks to inflation adjustments,” Drossman says. Ask your tax professional and financial advisor about ways you can plan ahead to make the most of these changes to help minimize next year’s tax liability, he adds.
More tax-advantaged ways to save for retirement. The SECURE 2.0 Act raises the age for taking required minimum distributions (RMD) from tax-advantaged retirement plans to 73 in 2023, from 72 in 2022, and again to 75 in 2033. That could mean extra time for you to keep all of your savings invested for potential growth or to consider a Roth conversion during your retirement years, thus eliminating RMDs altogether. While not every provision takes effect this year, the law will also soon help young employees to start saving while paying off student debt and will shortly boost “catch-up” opportunities for those nearing retirement, among other changes. With these in mind, now may be a good time for investors of all ages to consider upping their retirement contributions to tax-advantaged plans, Drossman says. In fact, he adds, that’s one thing you can still consider doing for tax year 2022: You have until April 18, 2023 to make 2022 contributions to a tax-advantaged traditional or Roth IRA1, if you haven’t already reached the contribution limit.
Green tax credits galore. Planning to make your home more energy efficient? Here’s incentive to start now: For 2023, the Inflation Reduction Act increased tax credit limits to $1,200 per year (up from $500 over a lifetime), covering 30% of the cost for windows and doors, insulation and heating and air conditioning equipment. The Act also added or expanded tax credits for renewable energy systems and new or used clean vehicles.
For a more detailed dive into tax strategies to discuss with your tax professional and financial advisor, read “2022 Year-End Tax Planning” and “Beginning of Year Tax Planning” from the CIO.
1 Internal Revenue Service, “IRA Year-End Reminders,” October 26, 2022.
SECURE 2.0 offers help for retirement savers of all ages
THE NEW YEAR BRINGS NEW REASONS to revisit — and possibly increase — your retirement plan contributions. The SECURE 2.0 Act of 2022— part of the $1.7 trillion Consolidated Appropriation Act signed into law back in December — makes it easier for taxpayers of all ages to save more for retirement.
“SECURE 2.0 attempts to address deficiencies in retirement plan participation and savings,” says Mitchell Drossman, head of National Wealth Strategies in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. Several key provisions are highlighted below. But there’s much more. For a broader look, read “Tax Alert 2023-01: SECURE 2.0 Provisions Affecting Retirement Plans and IRAs”
What’s new for younger workers?
It’s about to become easier to save for retirement while paying off student loans. “While many provisions benefit older savers, the SECURE 2.0 Act also aims to help new employees get in the retirement savings habit,” says Drossman. Recent graduates with significant debt often must prioritize repaying loans over saving for retirement. The new law addresses that by enabling employers (starting in 2024) to make matching contributions to retirement plans based on the amount of student debt an employee is repaying (up to the amount that employee would be eligible to contribute to their own plan).
Saving becomes automatic. To increase participation, starting in 2024 companies offering new retirement plans must automatically enroll employees and periodically increase their employees’ plan contributions. Employees may still choose to opt out, but automatic enrollment can encourage more employees to save, Drossman notes.
More incentives for those closer to retirement
Higher “catch-up” contributions. Catch-up contributions have long been a way for individuals over 50 to save additional amounts in their tax-advantaged plans. Starting in 2024, the new law allows participants in 401(k) and 403(b) plans aged 60 through 63 to contribute $10,000 or 150% of the standard catch-up amount, whichever is greater. (For participants in SIMPLE IRAs and SIMPLE 401(k) plans, the limits are $5,000 or 150%). But there’s a catch: Starting in 2024, those earning more than $145,000 will have to make catch-up contributions to a Roth IRA or Roth 401(k) plan. In other words, they’ll have to contribute post-tax dollars, though the distributions will be tax free when they take them out in retirement.
Later RMDs mean more time to invest. The new law raises the age for taking required minimum distributions (RMDs) to 73 in 2023, up from 72 last year and 70.5 as recently as 2019. The change reflects the fact that many Americans are choosing to work longer, Drossman says. “Forcing people to take distributions while they’re still working conflicts with the goal of saving for retirement.” In 2033, the age will rise to 75. All of which means potentially more years for your investments to grow before you must take money out.
Lower penalties for missing the RMD deadline. Failure to take distributions on time has traditionally meant a penalty of 50% of the amount of the missed RMD, Drossman notes. The SECURE 2.0 Act cuts the penalty to 25% starting this year, and it could even be lowered to 10% in some cases. These and other changes often contain complex requirements, he adds. Speak with your plan administrator, your tax professional and your advisor about how best to take advantage of the new opportunities this legislation offers.
To find out whether you should consider saving more for retirement, try our Retirement Calculator and read “Am I Saving Enough for the Retirement I Want?”
Outlook 2023: Inflation’s decline a good sign
WILL THE PERFECT MARKET STORM OF 2022 finally blow itself out in the year to come? That’s the consensus emerging from top Chief Investment Office strategists in a new webcast, “Outlook 2023: Back to the (New) Future.”
“High inflation, rising rates, geopolitical volatility and more led to one of the worst years on record for stocks and bonds,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “We believe those disruptive forces will ease in the new year, eventually paving the way for a new bull market cycle.”
As a potential step in that direction, the Federal Reserve (the Fed) on Wednesday raised interest rates by .5%.1 That’s lower than hikes of .75% at Fed meetings earlier this year and comes after inflation eased in November, with the Consumer Price Index (CPI) falling to 7.1%, compared with 7.7% for October.2
Still, the road to recovery won’t be fast or easy, Hyzy says. Assuming the positive trends continue, here’s how potential opportunities could unfold.
Look to bonds early in the year
As investors navigate early challenges in 2023, bonds present a surprising bright spot, says Matthew Diczok, head of Fixed Income Strategy in the Chief Investment Office for Merrill and Bank of America Private Bank. U.S. Treasury yields are for the first time in years outpacing dividends for S&P 500 stocks. “During the worst of the pandemic, bond yields were losing 2% to inflation,” he says. “Today, bond investors can achieve a yield above inflation, which is a wonderful change for savers.”
Shift your attention to stocks in the second half
“We believe that inflation will fall further, interest rates and the U.S. dollar will peak and the Fed will pause further increases in 2023,” says Marci McGregor, senior investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank. “We see 2023 bringing the end to this cyclical bear market, and we’ll want to consider assets such as stocks that outperform during recoveries.”
Historically, value stocks (those the market may currently be undervaluing) do better than growth stocks during the recovery stage of the cycle, adds McGregor. Moreover, “We think small cap stocks will outperform large caps when the Fed pauses and again when it cuts rates.” Energy — both traditional and renewable — remains attractive, she says.
For now, one of the most important things investors can do is remain patient, look beyond periodic volatility in early 2023 and continue to invest and plan for the future. “That can be hard,” Hyzy says, “but at moments like these taking the long-term view is more important than ever.”
For more year-ahead insights, read “Outlook 2023: Why This Could Be a Pivotal Year for Investors” and visit our Today’s Markets page regularly for updates.
1 The Wall Street Journal, "Fed Raises Rate by 0.5 Percentage Point, Signals More Increases Likely," Dec. 14, 2022.
2 The Wall Street Journal, “U.S. Inflation Eased in November, CPI Report Shows,” updated Dec. 13, 2022.
The voters have spoken — how will the markets react?
PRELIMINARY MIDTERM ELECTION RESULTS SURPRISED MARKETS that had already priced in a decisive Republican sweep. “Leading up to the elections, we had seen the equity markets advance, particularly in the last couple of weeks,” says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank.
Instead, with votes still being tallied, Republicans now appear likely to take control of the House of Representatives by a slim margin, and Democrats have retained control of the Senate. Below, Dan Clifton, head of Washington Research for Strategas Research Partners, provides insights on the midterms and the likely impact on markets and the economy moving forward.
Why gridlock can be good for the markets
While gridlock can be a negative for the economy, markets respond favorably to the idea that a president or Congress may have a harder time enacting new spending, tax increases and regulation. A slimmer-than-expected Republican majority in the House, with Democrats holding on to the Senate, would still bring a degree of gridlock, Clifton notes. New tax increases or energy regulation would be unlikely over the next two years, for example, he says. But Republicans may be unable to slow the progress of existing bills such as the Inflation Reduction Act, promising billions of dollars in spending on green energy. “Historically, the combination of a Democratic president, Republican House and Democratic Senate has produced a 13.6% increase in the S&P 500 over the next year,”1 he adds.
All eyes on the lame-duck session
The remainder of 2022 could be a key time to accomplish goals that benefit both parties, Clifton notes. For example, “Both parties have an incentive to hammer out a budget.” Washington may also find bipartisan agreement to raise the debt ceiling before the new Congress takes office, he adds. These actions would help avoid headaches for both parties next year, and they also could mollify markets, since pitched battles over budgets and debt ceilings are a type of gridlock that markets don’t like, Clifton says. Despite partisan tensions, lawmakers may also find common ground on the National Defense Authorization Act, funding the military, and on corporate tax credits, established during the previous administration, that are set to expire, he adds.
Sectors that could potentially benefit
In anticipation of a larger Republican victory, markets had priced in a potential reduction in green energy spending. Now, “there may be a bit of a rally in clean energy stocks,” Clifton says. Infrastructure-related companies, too, may prosper as they begin to see a bump in spending related to 2021’s Infrastructure Investment and Jobs Act. In other sectors, the impact of the midterm elections may be overshadowed by the economic and market volatility that 2022 has already experienced, thanks to inflation, rising interest rates, geopolitical instability and other factors, Clifton notes. Biotechnology and pharmaceuticals, meanwhile, will likely continue to perform well in a time of inflation.
Looking ahead to 2024
Heads are already turning to the election two years from now, which will include a presidential race. “The market will start anticipating outcomes almost immediately,” Clifton notes. With the potential for races focusing less on partisan hostility and more on policy matters, he says, “I think the 2024 election is going to be one of the great elections of our lifetime.”
To hear the complete conversation between Hyzy and Clifton, recorded on November 9, listen to the “Special CIO Post-election Market Update Call.” For regular insights on the markets and the economy, tune in to the CIO Market Update audiocast series.
1 Strategas Research Partners, based on FactSet S&P 500 data.
Will there be a post-midterm market rally?
AT A TIME OF SHARP INFLATION, rapidly rising interest rates, uncertainty around the midterms and other pressures, the approaching Nov. 8 elections have already seen the fourth-largest midterm drawdown since 1950, says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. But, historically, midterm market volatility has been followed by market growth lasting through the first half of the following year. In fact, “the average gain from the midterm market low point, one year after the election, is about 32%,”1Hyzy notes.
However, because this time around any potential market rally might be delayed by a mild recession, Hyzy encourages investors to look to the future. “With great resets come great opportunities,” he says. The outcome of the midterms could determine where some of those potential investment opportunities lie.
Investing in a time of gridlock
With inflation and the economy at the forefront of voters’ minds in 2022, “Republicans appear in pretty good shape to win back control of the House of Representatives,” says Jim Carlisle, head of Federal Government Relations at Bank of America. The Senate remains too close to predict, he says, adding that a split Congress would result in gridlock.
With no new legislation getting through, Democrats would likely shift to implementing infrastructure and green energy projects paid for under bills that have already passed. “Republicans would likely focus on crime, energy independence and border security,” notes Carlisle. Areas of common ground might include regulating crypto assets and enhancing digital privacy.
Post-midterm strategies to consider
With so many unknowns, investors should stay diversified and avoid trying to time the markets based on short-term predictions, Hyzy notes. “Now is a good time to step back and take a deep breath,” he says. “Between the midterms and year-end, we should get a better view of corporate profits and momentum for next year.” In the meantime, investors can consider the following three strategies.
- Look for bipartisan opportunity. “Regardless of the election outcome, defense spending is likely to continue to support Ukraine and to rebuild our peacetime arsenal,” says Marci McGregor, senior investment strategist for the Chief Investment Office, Merrill and Bank of America Private Bank. “Another key area to consider is cybersecurity.”
- Pivot to bonds. “While rising rates have created one of the worst years ever for bond investors, we believe adding longer-term Treasurys or municipal bonds now through 2023 makes sense,” Hyzy says. Should a mild recession in early 2023 prompt the Fed to pause rate hikes, “bonds could help diversify a portfolio and deliver yield and return at the same time.”
- Focus on big-picture opportunities. “Long-term investors should consider industries likely to drive innovation,” McGregor believes. Areas such as digitalization, robotics, healthcare infrastructure and renewable energy “may regenerate and ultimately underpin markets as we get into a new cycle.”
For more midterm market perspectives, listen to “Midterm Market Effect: What to Look for After the Election,” and read “Midterm Elections 2022: Potential Outcomes and Investment Implications.”
1 Strategas Research Partners, Chief Investment Office. Data as of October 14, 2022.
What could the midterms mean for the markets and economy?
AMID INFLATION, RISING INTEREST RATES, MARKET VOLATILITY and geopolitical conflict, the November 8 midterm elections may be drawing less attention than usual from financial observers, says Marci McGregor, senior investment strategist for the Chief Investment Office, Merrill and Bank of America Private Bank. “In a typical midterm year, this would be the dominant subject,” she says. Yet while the elections may be competing for headline space, investors should not discount their potential impact on policy, the economy and markets, she adds.
For perspectives on the elections, what a shift in Congressional power could mean, and likely next moves from the Federal Reserve (the Fed), McGregor turned to Libby Cantrill, head of public policy for the global bond firm PIMCO.
Q: Historically, what have the midterms meant for the party in power?
While there’s no sure way to predict outcomes, midterm elections historically tend to work against whichever party currently holds the White House, especially during a president’s first term, Cantrill says. “Since World War II, the party in power has lost an average of 26 seats in the House of Representatives and four in the Senate.” As in previous midterms, a party turnover may be likeliest in the House, where all 435 seats are up for election, versus 34 of 100 Senate seats, she adds.
Q: What are the implications for the markets and economy?
Over the past two years, new laws such as the Inflation Reduction Act have passed with slim margins along party lines. A change in control in one or both houses of Congress would likely bring “gridlock, meaning that the administration’s legislative agenda is completely frozen,” Cantrill says. For the next two years at least, that would likely mean no new changes to the tax code. Additionally, “a shift in Congress would throw sand in the gears of regulatory efforts — and investment markets may favor the prospect of fewer business regulations,” she adds.
“The downside, if Congress flips, is that we should expect more policy volatility around things that are relatively routine. So funding the government becomes much more difficult,” Cantrill says. Gridlock could lead to potential government shutdowns, as well as protracted battles over everything from the debt ceiling to the administration’s new student loan forgiveness policy and fiscal support for the economy in the event of a recession. “I liken it to the fiscal punchbowl being taken away,” Cantrill says.
Q: Speaking of recession, what’s the likelihood we’ll see one?
Regardless of the election results, the Fed is likely to continue raising interest rates until inflation comes under control, Cantrill believes. That’s because the Fed is worried that inflation is becoming more entrenched. Further rate hikes could lead to a “hard landing” for the economy, she adds. “The degree of recession, though, if we have one, is an open question. Our base case is that it would be a shallow but persistent recession, but there is more downside to that growth prediction, meaning we could see a deeper recession.”
Tune in to Merrill’s CIO Market Update audiocast series, for regular insights on the markets and economy.
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Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Opinions are as of the date of these articles and are subject to change.
Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.
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The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S" or “Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).
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