Investors have a busy few weeks ahead of them, with the new Labour government’s first Budget and the US election coming in back-to-back weeks.
Add in the Federal Reserve and Bank of England’s forthcoming rate decisions and the next few weeks are bound to full of news stories that could impact investors’ portfolios.
I may or may not be here for all of them, as my wife and I are expecting our second child towards the end of this month, so here is my tuppence on what is expected and what investors can do about it.
Taking the Budget first, there is a lot of speculation about the ways chancellor Rachel Reeves will look to address the seemingly growing black hole left for her by the previous government.
This week, the Times revealed a rise in capital gains tax on shares could be on the cards, while others have suggested the inheritance tax benefit on AIM shares could be scrapped.
Although far from market-friendly, both seem like short-term shocks rather than long-term issues for most people.
I do not know how many investors buy AIM stocks for their inheritance benefits (and it can at times be hard to know which stocks qualify), while CGT will only affect those who hold their investments outside of an ISA.
On these counts, any weakness in the market could be a buying opportunity, as these are unlikely to move the needle over the long term.
Pension reform could be the big ticket, but I will not speculate until we know exactly what the plans are here as there is so much up in the air. However, investors will need to watch this more closely.
Turning to central banks, many expect further reductions to interest rates next month, after the Bank of England paused its cutting cycle in September.
Lower rates should benefit growth stocks, but these have already rocketed higher on the back of the artificial intelligence (AI) boom, so how much further they have to run (and how much is already priced in) is a big question.
Falling rates should benefit bonds, but investors will want to make sure they are prudent when it comes to fixed income, as spreads are extremely tight and being in the right area of the market could be the key to getting the best returns.
High-quality investment grade or even government bonds seem the most sensible place to be in my view, as the starting yields are reasonably high. Being shorter duration also seems a prudent play, as Ben Lord and Richard Woolnough from M&G Investments explained earlier this week.
Finally, to the US election where it seems too close to call between former president Donald Trump and current vice president Kamala Harris.
The two candidates differ wildly in many aspects. Trump is more aggressive on his immigration policy, looking to ramp up deportation, said Randeep Somel, a global equity fund manager at M&G.This would create a smaller pool of lower-wage labour and would weaken demand, he noted.
Trump also plans to increase tariffs on all goods from abroad by 10% and potentially up to 60% on Chinese products. This would be inflationary and could create a tit-for-tat scenario in which other countries put levies on US goods in retaliation.
Meanwhile, Harris’ biggest policies include increasing the minimum wage (which should increase consumer spending and potentially inflation), rolling back tax cuts for the wealthy and hiking the corporate tax rate.
These are all a mixture of positive and negative for the economy, depending on which side of the political fence you sit on.
One thing that is certain is US debt is expected to rise. “The US today has buoyant economic growth and unemployment at near-record lows, yet it is spending $1.2trn per year more than it is taking in in tax receipts,” said Somel.
The Congressional Budgetary Office expects $22trn will be added to the national debt over the next decade at the current rate. That’s before the outlined policies, with Harris likely to add an extra $1trn while Trump would turbocharge this debt by $5trn.
It is clear there is a lot of economic uncertainty in the US, regardless of who wins the election, so long-term, diversified investing is likely to be required, whatever the outcome.