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LGT Beacon: Growth outlook will outweigh tax headwind

April 29, 2021

Today, we review the US fiscal policy plans in terms of their potential impact on the economy and markets. Although investors may respond with intermediate asset sales if the tax hikes prove too aggressive, the positive cyclical outlook should prevail. Against this background, we further fine-tune our reflationary investment positioning.

In this report, we review the fiscal stimulus and tax plans of the US administration. Overall, we believe the net impact will ultimately prove to be positive for both the economy and financial markets, although investors may respond with some intermediate nervousness if some provisioned hikes prove more severe than generally anticipated. However, in their current stage, the plans seem rather well balanced. For instance, while the tax hikes will weigh on corporate profits, they also reduce the potential extra upward pressure on interest rates (by limiting the additional increase of future Treasury debt issuance) and lift economic growth. 

In a second part, we update readers on our positioning, i.e. on the so-called reopening trade – the outlook for sectors that should benefit from the rollback of the COVID-19 pandemic and the normalization of social and economic activity.

From crisis relief to trend growth

At the end of March, US President Joe Biden announced government spending programs worth close to USD 4 trillion, or about 19% of gross domestic product (GDP), in the form of the American Jobs Plan (AJP), an approximately USD 2 trillion infrastructure and green energy investment plan, and the American Families Plan (AFP), tagged at another USD 1.8 trillion. The announcement came only shortly after the president signed a USD 1.9 trillion pandemic relief bill into law at the beginning of that same month. However, apart from the staggering magnitude of fiscal dollars involved, the latest spending plans differ from the just-passed COVID-19 relief bill. They focus on structural growth, rather cyclical support, and are in theory fully funded by tax increases, instead of debt.

Read on by clicking the link here: LGT Beacon

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Note: The next edition of the LGT Beacon is scheduled for May 2021.