Markets are off to a bumpy start in September as some investors are searching for signs of a coming recession. The August jobs report came out this morning and showed that 142,000 jobs were created last month, slightly less than expected. However, the unemployment rate fell from 4.3% to 4.2% as expected. Although the economic data continues to signal a “soft landing,” with the economy slowing as expected, there are some investors eager to get ahead of the next recession. As such, they appear to be selling first and asking questions later.
“Let’s front-run the recession. That seems to be the attitude of some investors at the start of September. Never mind the economic data does not support such doom and gloom.”
The Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025 and the new administration and Congress will need to work together to set tax policy for 2026 and beyond. If it were allowed to expire with no new legislation, taxes would go up for almost everyone. Taxes for unmarried individuals, for example, would change as follows:
https://dmjps.com/preparing-for-tax-changes-in-2025/
Additionally, the standard deduction would return to pre-2017 levels, causing many taxpayers to itemize their deductions again.
https://dmjps.com/preparing-for-tax-changes-in-2025/
This will be a major story next year as Washington will have its plate full. Historically, federal tax revenues have averaged around 17% of the size of the economy (GDP) and that’s where we were last year.
Source: Strategas Research Partners, as of November 1, 2023
And on the spending side of the ledger, federal spending has averaged slightly less than 20% of GDP until 2021. Since then, federal spending has been significantly higher and was 24.3% of GDP last year.
Source: Strategas Research Partners, as of November 1, 2023
If we would like to keep government spending at these higher levels then we obviously need to raise taxes. Alternatively, if we don’t want to raise taxes then we need to spend a lot less. The gap between tax revenues and spending has become too large to simply “grow ourselves out of.”
Recent economic growth and stock market returns have been based upon these unsustainable trends. Higher taxes and lower federal spending are both likely to lead to slower economic growth and lower US market returns ahead (as I touched on last week).
Although candidates really aren’t talking about this much, the ones we send to Washington in November will be entrusted with setting us on the best course for 2026 and beyond.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
Harmon Financial Advisors, Inc. is an independent, fee-based financial planning firm and an independent Registered Investment Advisor. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. and Harmon Financial Advisors, Inc. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Harmon Financial Advisors, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
Keep in mind that individuals cannot invest directly in any index. Past performance does not guarantee future results. Individual investors’ results will vary.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information in this commercial email has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Harmon Financial Advisors, Inc. and not necessarily those of RJFS or Raymond James.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors, we are not qualified to render advice on tax or legal matters. Raymond James does not provide tax or legal advice. Please consult you own legal or tax professional for more detailed information on tax issues and advice as they relate to your specific situation.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. International investing involves special risks, including currency fluctuations, differing accounting standards, and possible political volatility.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Investments & Wealth Institute™ (The Institute) is the owner of the certification marks “CIMA” and “Certified Investment Management Analyst.” Use of CIMA and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals.
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.
Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
