Concerns over timing and implementation of President Donald Trump’s tax cut plans weighed on the key U.S. indexes recently. Investors remain pensive after Senate Republicans revealed a tax cut plan that entails the deferment of corporate tax cuts for a year. Adding to markets’ woes is a near certain rate hike post Fed’s December meeting.
Investors need to digest the uncertainties over implementation of Republicans’ tax cut plans and December rate hike prospects over the coming months. In this context, mutual funds that are capable of offering favorable returns and bear a lower level of risk might be prudent investment options.
Tax Cut Prospects Worries Investors
On Nov 9, Senate Republicans unveiled their version of a tax cut legislation which focuses on reducing the corporate tax rate from 35% to 20%, but not before 2019. In contrast, House Republicans’ version highlighted a similar tax cut by 2018. But, with the release of Senate Republicans’ tax plan, investors fretted over President Trump’s ability to implement his much-awaited tax reforms over the coming months.
With this new spell of uncertainty, all the three key U.S. indexes registered their first weekly declines in the last two months, in the week ended Nov 9. Also, benchmarks finished in the red on Nov 15, with both the Dow and S&P 500 registered their worst one-day performance since Sept 5.
December Rate Hike Evident
As expected, the Federal Reserve kept interest rates unchanged in its previous policy meeting ended Nov 1. But the Fed remained upbeat on domestic economic progress and a stronger labor market, offering signs of a December rate hike. In its next meeting from Dec 12-13, the Fed is widely expected to increase key interest rates by 0.25 points.As per CME Group’s FedWatch tool, market expectations for a December rate hike are now 90%.
A wide section of investors is already bracing for a rate hike next month. But given the renewed uncertainty in the market over Trump’s tax overhaul policies, a rate hike could make things tougher. The Fed is only likely to tighten monetary conditions further going ahead, which makes it imperative for investors to focus on low-risk mutual funds.
