Understanding the New Children’s Investment Accounts Launching in 2026

Every parent dreams of giving their children a head start in life. Starting in 2026, a new federal program will do exactly that—and thanks to an extraordinary $6.25 billion pledge from Michael and Susan Dell, the gift just got bigger.

Here’s what makes this program remarkable: If you have children age 10 or under, they may automatically receive up to $1,250 in free investment capital—$1,000 from the government plus $250 from the Dell Foundation. No action required beyond enrollment. For a family with two eligible children, that’s $2,500 invested in their future at no cost to you.

The question isn’t whether to accept this gift—it’s whether these “Trump Accounts” make sense as part of your broader savings strategy for your children.

What These Accounts Are Called

These accounts are commonly known as “Trump Accounts” or “Children’s Investment Accounts.” They’re formally defined in Section 530A of the One Big Beautiful Bill Act and are sometimes referenced as “530A accounts” in tax documentation.

Official Website: All program and enrollment information will be published at trumpaccounts.gov

Program Timeline

Spring 2026: Families can begin enrolling by filing IRS Form 4547 with their tax returns or through other designated methods.

Mid-2026: Online enrollment portal launches at trumpaccounts.gov.

July 4, 2026: The program formally launches with seed deposits funded, contributions enabled, and full account access available.

How Trump Accounts Work – The Basics

Eligibility

Any U.S. citizen under age 18 with a Social Security number can have an account opened on their behalf. Children born between 2025 and 2028 automatically receive a $1,000 government-funded seed deposit.

The Dell Foundation Gift

The Dell family’s $6.25 billion contribution provides an additional $250 to eligible children who meet specific criteria: age 10 and under, born before January 1, 2025, and living in ZIP codes with median household incomes of $150,000 or less. This enhancement reaches approximately 25 million children across roughly 75% of U.S. ZIP codes.

Annual Contributions

Families may contribute up to $5,000 per year per child, including employer contributions. Employers may contribute up to $2,500, which counts toward the $5,000 annual cap. Philanthropic enhancements like the Dell gift are separate and don’t count against contribution limits.

Investment Requirements

All funds must be invested in low-cost, broad U.S. equity index funds designated by the Treasury Department. Annual fees are capped at 0.1%. Accounts are initially established through the Treasury and can later be transferred to approved private financial institutions.

The Critical Detail: What Happens to the Tax Treatment

Understanding the tax treatment matters because it affects whether you should add your own money to these accounts or use other vehicles instead. Think of it in two phases:

PHASE 1: Before Age 18 (The Accumulation Phase)

During childhood, contributions are made with after-tax dollars, and investment growth accumulates tax-deferred. Parents or guardians maintain control of the account during this period. This phase is straightforward.

PHASE 2: After Age 18 (The IRA Conversion Phase)

At age 18, Trump Accounts automatically convert to traditional IRAs. This conversion fundamentally changes how the account functions:

Access and Control: The young adult gains full control as the account becomes a traditional IRA in their name.

Withdrawals and Taxes: This is where it gets important. Distributions are taxed as ordinary income on all earnings and growth (though your original contributions come back tax-free). Additionally, the 10% early withdrawal penalty applies to distributions before age 59½.

The Exception Rules:

The 10% penalty (not the taxes) can be waived for:

• First-time home purchases (up to $10,000)
• Qualified education expenses
• Business startup costs in certain circumstances

Here’s the crucial point many families miss: These “qualified expenses” only waive the 10% penalty—they do NOT eliminate the ordinary income tax on the earnings. Even when funding college or buying a first home, you’ll owe income tax on all the growth.

Investment Flexibility: After conversion, the account can be invested more broadly according to traditional IRA rules, no longer restricted to designated index funds.

Why This Matters: This automatic conversion to a traditional IRA means families should carefully consider whether contributing their own funds makes sense compared to other savings vehicles like 529 plans (where qualified education withdrawals are completely tax-free) or custodial accounts (where flexibility is greater).

Comparing Your Options: Trump Accounts vs. 529 Plans vs. UTMA Accounts

We believe informed decisions come from clear comparisons. Here’s how Trump Accounts stack up against the savings vehicles you may already be using:

Trump Accounts offer a $1,000 government seed deposit (for children born between 2025 and 2028) plus potential philanthropic enhancements like the Dell gift. The $5,000 annual contribution limit includes employer contributions. Investment growth is tax-deferred, and the account converts to a traditional IRA at age 18. Withdrawals after 18 are taxed as ordinary income with standard IRA penalties and exceptions applying. The parent controls the account until age 18, then the child gains full access.

529 Plans have no government seed funding but offer no annual contribution limits (though lifetime caps apply by state). Contributions may be deductible at the state level. Investment growth is completely tax-free when used for qualified education expenses. Withdrawals for education are entirely tax-free, while non-education withdrawals face taxes and penalties. The account owner retains control indefinitely and can change beneficiaries.

UTMA Accounts offer no government funding and no annual limits beyond gift tax considerations. There are no tax deductions for contributions. Investment growth is taxable annually, and the kiddie tax may apply. Withdrawals can be used for any purpose benefiting the child with no special tax treatment or penalties. The child gains full, unrestricted control at age 18 to 21 (depending on state), and investment options are highly flexible.

The Bottom Line: The right choice depends entirely on your family’s priorities and timeline—which is exactly the kind of conversation we help clients navigate.

Our Perspective: When Trump Accounts Make Sense

At Gatewood, we believe in giving you straight talk about financial products—even new, politically branded ones. Here’s our professional perspective:

The free money is a no-brainer. If your child qualifies for the government seed and Dell enhancement, opening an account is essentially accepting a gift. We’d help every eligible family capture this benefit.

Your own contributions require more thought. For most families focused on education funding, 529 plans deliver better tax outcomes. The Trump Account’s conversion to an IRA at 18 means you’ll pay ordinary income tax on withdrawals—even for education. That’s objectively less attractive than a 529’s completely tax-free treatment for qualified education expenses.

But there are scenarios where these accounts shine:

• You’re already maxing out 529 contributions and want additional tax-advantaged savings
• Your priority is very long-term wealth building (retirement savings starting at birth)
• You’re specifically targeting a first home down payment for your child
• You want to diversify across multiple savings vehicles with different tax treatments

Remember that implementation details are still evolving. The IRS continues to issue guidance on program specifics, and some questions remain unanswered as of December 2025.

The key question isn’t “Are Trump Accounts good or bad?” It’s “Are they right for YOUR family’s specific goals and timeline?”

The Bigger Picture: Why This Program Was Created

This program reflects a simple idea: giving young Americans an ownership stake in the economy early can transform how they think about money, investing, and wealth-building. The policy goals include expanding equity ownership across economic classes, supplementing Social Security with private savings, and creating what policymakers call a “shareholder economy.”

Whether this achieves its lofty policy goals remains to be seen—but for individual families, the opportunity to capture free seed capital and teach children about investing is very real and tangible.

Treasury officials emphasize these accounts are designed to supplement, not replace, Social Security and other safety net programs. The long-term vision is to empower a generation with real assets, investment experience, and an ownership mindset from day one.

How Gatewood Can Help

This program launches in mid-2026, which gives us time to think strategically together. Our process focuses on three essential questions:

1. Does your family qualify for the maximum benefits, including the Dell enhancement?
2. Should you contribute your own funds, or does a 529 or custodial account better serve your goals?
3. How does this fit into your broader wealth-building strategy for your children’s future?

We excel at these nuanced conversations—the kind where “it depends” actually becomes “here’s exactly what makes sense for you.” This isn’t about selling you on Trump Accounts. It’s about ensuring you make the most informed choice for your family’s unique situation.

Ready to discuss your family’s strategy?

Important Considerations

This program is new, and IRS regulations continue to evolve. The information provided here reflects program details as understood in December 2025, but specific rules and procedures may change as implementation progresses. Investment returns are not guaranteed, and tax laws may change. This material is educational and not a recommendation for any specific action.

For personalized guidance on whether Trump Accounts make sense for your family, we encourage you to consult with a financial advisor and tax professional who can evaluate your complete financial picture.

Important Disclosures

Securities and advisory services are offered through LPL Financial, a registered investment advisor and broker-dealer (member FINRA/SIPC).

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Gatewood and LPL Financial are separate entities. Gatewood Wealth Solutions does not provide legal or tax advice directly. However, Gatewood Tax & Accounting, a separate entity under the Gatewood family of companies, provides comprehensive tax planning and preparation services. For legal matters, you should consult your legal advisor regarding your personal situation. Our team coordinates closely with clients’ tax and legal professionals to help ensure comprehensive planning.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

Why solving our fiscal problems requires more than populist revenue

Dan’s recent blog on tariffs sparked great debate—and it’s exactly the kind of back-and-forth that makes Gatewood special. We don’t always agree, but we’re united by a deeper goal: helping clients—and the country—move forward with clarity.

In fact, Dan and I agree on much more than we disagree. We both want fiscal sanity. We both want a more secure, more sovereign America. But where I start to diverge is in how we get there—and more importantly, what costs we may be ignoring along the way.

The Patriotic Appeal

Tariffs have an undeniable surface-level appeal. They feel like we’re standing up for ourselves. They’re visible, easily framed as constitutional, and unlike the income tax, they don’t require the IRS knowing the color of your wallpaper.

For those of us who believe in limited government, sound money, and national sovereignty, tariffs can feel like a clean swap: ditch the bloated tax code, bring back duties on imports, and reignite American industry.

But that’s the illusion. We’re not replacing anything—we’re adding.

If Tariffs Fix It… Why More Debt?

Let’s be honest about the timing. If tariffs were the fix, why did the same legislative push include a $5 trillion hike to the debt ceiling?

Yes, our tax system is bloated and full of misaligned incentives. But changing the source of tax revenue without reducing the need for tax revenue just feeds the same appetite with a different spoon.

Dan—and even the Trump administration, at times—have argued that no one is offering serious spending cuts. But that’s not quite accurate. DOGE is actually an example of a proposed constraint with substantial support, at least among the public.[1]

Likewise, leaders like David Stockman, Rand Paul, and Thomas Massie have consistently proposed concrete spending reductions.[2] Think tanks like the Heritage Foundation have published full spending-cut blueprints—for example, their “Blueprint for Balance” report offers detailed proposals across discretionary and mandatory spending categories.[3] The problem isn’t a lack of ideas—it’s a lack of political will. And when the addiction runs this deep, adding more revenue doesn’t promote sobriety—it just buys more drinks.

As an aside, entitlement reform is where the real fiscal reckoning lies. These off-balance sheet liabilities are rapidly becoming on-balance. Means testing, extending age eligibility, and protecting those already relying on Social Security is likely the responsible, principled path forward. But that requires honesty—and the courage to call these programs what they legally are: welfare benefits.[4]

Tariffs Are Taxes—Let’s Not Pretend Otherwise

We can debate whether tariffs are inflationary (and I tend to agree with Dan: they’re not in the strict monetary sense). But they are a tax. Like all taxes, they distort prices, create inefficiencies, and protect the politically connected.

Tariffs rarely stop at revenue. They become vehicles for cronyism. Industries seek shelter, not strength. Consumers pay more, often unknowingly. The economy shifts—not through innovation, but through manipulation.

We may “win” a few trade skirmishes, and no, this isn’t Smoot-Hawley 2.0. But if our goal is genuine economic progress, tariffs risk lowering our standard of living—especially if they mask the real disease: runaway spending.

What Actually Works

Here’s what history supports:

• Lower and flatter tax codes
• Capital formation and voluntary exchange
• A federal government limited to its essential roles

We’ve seen it repeatedly: prosperity isn’t determined by how you collect revenue, but by how much is taken and how little the market is distorted in the process.

History shows that income taxes, even with rate changes, tend to remain a steady share of GDP—an observation often attributed to Hauser’s Law, which suggests that federal tax revenues rarely exceed 19–20% of GDP regardless of marginal tax rates. This pattern is also supported by Congressional Budget Office (CBO) data over the past several decades.[5] What shifts is who shoulders the burden. And corporate taxes—despite political rhetoric—have declined significantly as a share of overall federal revenue, falling from over 10% in the late 1980s to under 7% in recent years.[6] It’s no wonder Washington is eager to find new tools.

The Real Discipline Test

In theory, tariffs could be a more visible and arguably more constitutional source of revenue—if they were replacing something.

But they’re not. And they won’t. Not without structural reform. Not without Congress giving up its favorite excuse: “We just need more revenue.”

Dan and I agree: America needs to get its fiscal house in order.

But the discipline we need won’t come from patriotic branding or populist packaging.

It will come from restraint. From honesty. And from the courage to say no—not just to foreign imports, but to our own worst habits.

Want to talk about how policy changes might affect your financial plan? Reach out—we’d love to help you navigate it.

Want to hear the other side?

Gatewood’s COO, Dan Goeddel makes the case for tariffs as a practical, if imperfect, fiscal tool. [Explore Dan’s View →]

Family Footnote

Fun fact: I had a family member involved in the Boston Tea Party. Contrary to popular belief, it wasn’t about high taxes. It was about removing a tax that gave British tea a price advantage over American-smuggled tea. The rebellion wasn’t over taxation alone—it was over losing an advantage because of taxation. And some things never change.

[1] Axios. “House passes bipartisan DOGE Act aimed at ending government waste.” https://www.axios.com/2023/11/15/doge-act-house-bill-wasteful-spending

[2] Rand Paul’s “Festivus” Reports, David Stockman’s works like “The Triumph of Politics,” and Thomas Massie’s repeated bills and votes targeting discretionary spending.

[3] Heritage Foundation. “Blueprint for Balance.” https://www.heritage.org/blueprint-balance

[4] I sympathize with those who say, “I paid into the system.” Many were led to believe Social Security was a personal savings or insurance program. But as the Supreme Court confirmed in Flemming v. Nestor (1960), Social Security is a general welfare benefit—not a contractual right. That doesn’t mean we shouldn’t protect those counting on it, but it does mean we need to be honest about the structure going forward.

[5] Congressional Budget Office. “The Long-Term Budget Outlook.” 2023. https://www.cbo.gov/publication/58946

[6] Tax Policy Center. “Corporate Income Tax as a Share of Federal Revenue.” https://www.taxpolicycenter.org/statistics/corporate-income-tax-share-total-revenue

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

There’s a glaring contradiction in today’s economic discourse, and it clouds the investment outlook. The loudest voices warning about America’s unsustainable federal deficit are often the most reflexive critics of tariffs, an essential tool that could help address the crisis. They demand “fiscal responsibility” but fall silent when asked what they’d cut from the budget. Suggest entitlement reform, and they’ll tell you it’s political suicide. Propose higher income taxes, and they bristle at the economic drag. Ask how they’d raise $2.0 to $2.8 trillion annually to close the federal budget gap, and the conversation ends.

That’s why tariffs—unfashionable, imperfect, and deeply misunderstood—may be one of the only practical tools left that can meaningfully address the deficit until the country is ready for major changes to how the government collects revenue and spends.

D.O.G.E. Promised a Trillion-Dollar Fix. It Delivered a Rounding Error.

The Department of Government Efficiency (D.O.G.E.) was supposed to be the bold solution to government waste. Originally pitched as a vehicle for cutting $1 trillion in inefficiencies, the agency—backed by Elon Musk and restructured under President Trump—quickly revised expectations downward to $150 billion. D.O.G.E. operates as a consultant would, examining costs and structure and recommending changes to achieve efficiencies across various departments.

D.O.G.E. impact is a subject of some debate.  As of mid-2025, D.O.G.E. has claimed between $150 billion and $ 90 billion in savings, although independent audits dispute much of that figure. More troubling, aggressive cuts to revenue-generating agencies like the IRS reduced government income. By some estimates, DOGE’s efforts may have cost taxpayers $135 billion through re-hires, overtime, legal settlements, and lost tax collections.

While well-intentioned and fundamentally a good idea, the shortfall was a strategic failure that exposed the limits of the “cut spending” approach. D.O.G.E. aimed to trim fat but ended up delivering a rounding error instead of transformational change.

Growth Alone Won’t Save Us

With a less-than-spectacular D.O.G.E. impact, and large Government spending cuts off the table — at least for now — the bipartisan default in Washington has long been to grow the economy and let increased tax receipts shrink the deficit as a percentage of GDP over time. It’s an appealing theory that consistently fails in practice. Despite periods of strong GDP growth, federal spending continues to outpace revenue by unprecedented margins.

While the growth strategy is politically palatable and will help over time, the U.S.’s current fiscal situation, with annual deficits of over $2 trillion, is dire. We don’t have the luxury of waiting for growth to solve a crisis that compounds daily. Growth matters, but it’s not enough. We need substantial revenue, and we need it soon.

Understanding Tariffs: A Tax, Not Inflation

Let’s address the elephant in the room: tariffs are, in fact, a tax. But they are emphatically not inflation.

Inflation is a monetary phenomenon—the expansion of the money supply that dilutes currency value and drives broad-based price increases. Tariffs don’t expand the money supply or devalue the dollar. They are a targeted consumption tax applied to imported goods, with three key differences from domestic taxes:

1. Revenue generation: Unlike inflation, tariffs generate federal government revenue, potentially $300 billion annually
2. Targeted impact: They affect specific imported goods rather than the entire economy.  Imports are roughly 15% of the U.S.’s GDP today.
3. Importer and Corporate absorption possibility:  Who absorbs the cost increase from U.S. tariffs is an interesting and complex question, with the absorbing party differing by item and by importer. With energy costs roughly 10% lower than two years ago, many corporations have absorbed most of the tariff costs rather than passing them through

Despite persistent warnings from economists, tariffs have not triggered the runaway inflation they predicted.

The Hidden Costs of Corporate Absorption

However, when corporations absorb tariff costs, the economic impact doesn’t simply disappear—it gets redistributed. Companies facing compressed profit margins from tariff absorption experience a cascade of effects that ultimately flow back to the broader economy:

Reduced profit margins lead to lower corporate earnings, which translate to decreased stock valuations. This creates a diminished wealth effect as portfolio values decline, prompting consumers to reduce spending. Meanwhile, lower capital gains tax revenue partially offsets the government’s gains in tariff income.

This redistribution means that while tariffs may not be directly reflected in consumer prices, their costs still flow through the economy via financial markets and reduced economic activity.

The Regressive Reality of “Targeted” Impact

While tariffs don’t affect every sector equally, describing their impact as merely “targeted” obscures an important truth: if passed through, they disproportionately burden lower-income households. These families spend a higher percentage of their income on goods (versus services), have less flexibility to substitute away from imported products, and are more price-sensitive to increases in everyday items.

This regressive effect means that tariffs could function as a consumption tax that hits hardest those least able to absorb the cost—a significant trade-off that must be weighed against their revenue-generating potential. Kitchen table economics won 2024 for the Republicans, but it could be the reason they lose the 2026 midterm elections.

Why Income Tax Hikes Hit a Wall

One truism of taxes: Anything you tax, you get less of.  That reflects human behavior and rational economic actors. Raising income taxes sounds straightforward until you encounter the Laffer Curve’s hard ceiling. Beyond a certain point, higher rates reduce total tax revenue by discouraging work, saving, and investment. Historical data suggests we may already be approaching that point, considering total income taxes collected rose when Trump dropped rates in his first administration.

The federal government’s share of GDP rarely exceeds 20%, regardless of marginal tax rates. Taxing productivity has diminishing returns and penalizes the very economic activity we need to encourage. Tariffs, conversely, are harder to avoid and don’t punish domestic output. For revenue generation with minimal collateral damage to productivity, tariffs offer a superior approach, though they come with their own distributional consequences.

Tariffs as Statecraft: Economic Leverage Without Bloodshed

One of tariffs’ most under appreciated benefits is their geopolitical utility. Unlike sanctions or military action, tariffs exert pressure with fewer human costs and less international conflict.

Consider Canada’s Digital Services Tax proposal earlier this year, which targeted U.S. tech firms. The Trump campaign’s swift threat of retaliatory tariffs prompted Canada to reverse course within days. No troops, no diplomatic standoff—just credible economic pressure accomplishing what traditional diplomacy might have taken months to achieve.

In an increasingly multipolar world where military intervention grows costlier and less popular, tariffs represent a powerful, non-violent tool of statecraft.

The Mainstream Economics Blind Spot

The loudest tariff opposition comes from economists who forecasted a Great Depression during COVID, predicted inflation was “transitory,” and missed nearly every major market rebound of the past five years. Now they’re warning of recession if tariffs increase.

Perhaps they’re right this time. But their track record suggests their models are shaped more by ideological assumptions than empirical evidence. As investors and fiduciaries, we must remain disciplined and objective, recognizing that markets rise under both Democratic and Republican administrations because innovation and capitalism transcend partisan politics.

A Nuanced Approach: Targeted Implementation

Smart tariff policy requires acknowledging both benefits and drawbacks. The mainstream economic consensus identifies legitimate concerns: tariffs can raise consumer prices, potentially trigger trade wars, and may reduce competitive pressure on domestic industries.

The solution isn’t to abandon tariffs but to implement them strategically:

Who are the most inelastic exporters? 

What option do they have?  Early returns on inflation and the “Liberation Day” April 2, 2025, tariffs reveal higher government revenues and little to no increased inflation or inflation expectations. This result goes against conventional economic groupthink and needs further exploration. One idea is that exporters where trade deficits are large and long running are “inelastic” and as a result have little recourse but to absorb the tariffs if they wish to continue their export volumes.

Target critical industries:

Focus on sectors vital to national security—steel, defense, critical minerals, and advanced manufacturing—rather than blanket applications that raise consumer costs across the board.  Tariffs have an additional “incentive impact,” where importers may choose to build plants and manufacture in the U.S., thereby avoiding the tariff cost altogether.  This is not a simple calculation for these importers as U.S. production costs could be higher, negating the profitability improvement from moving production to the U.S..

• Use as negotiation tools: Follow the US-China Phase One trade deal model, leveraging tariffs to secure better terms while avoiding long-term economic fallout.
• Maintain policy clarity: Rapid shifts create business uncertainty that kills investment. Clear, consistent policies allow markets to adapt and plan accordingly.
• Match unfair practices: When trading partners engage in dumping or subsidization, targeted tariffs can level the playing field without escalating broader tensions.
• Open new markets to U.S. exporters:  One of the goals of recent tariff policy has been to open up agricultural markets to U.S. exporters, and this could have a beneficial impact on U.S. agricultural producers and exporters.

The Implementation Gap

However, a significant disconnect appears to exist between this strategic approach and current practice. The administration has largely deployed blanket tariffs across broad categories, including items that the U.S. cannot efficiently produce domestically, such as coffee, bananas, and numerous other products. This approach is a shock-and-awe approach to international trade, and if the intent was to draw everyone’s attention to this issue, the approach succeeded.  Unfortunately, this approach creates exactly the problems that strategic implementation could avoid: higher consumer prices on necessities, economic inefficiency from protecting non-strategic industries, and diplomatic tensions without clear negotiating objectives.

This gap between theory and practice undermines many of the arguments in favor of tariffs. The current approach resembles less a surgical instrument and more a blunt tool, impacting the U.S. investment landscape as we saw in the April-May timeframe and making it harder to achieve the revenue and strategic benefits while minimizing economic disruption.

Trump 2.0: Tariffs as Economic Policy

In his first term, Trump deployed tariffs more surgically, targeting China, steel, and automotive sectors. In his second term, tariffs are expected to anchor his economic strategy alongside tax cuts, deregulation, and energy dominance.

The Trump approach may be unpredictable, but it’s not irrational. His focus on significantly altering the terms of U.S. trade across all trading partners can provide near-term economic growth.  The mixed stock market performance that we have seen since April 2 creates a dynamic that appears to be high risk, high reward in terms of effective policy implementation. Tariffs can help the Trump administration achieve its objectives. Trump seeks a legacy of bringing industries back to the U.S., delivering on his promises of higher real wages to blue-collar workers, resulting in a booming economy.  The question is how far he can take this fundamental restructuring of U.S. trade relations without incurring significant international and domestic opposition.,

Markets Recover From Tariff Shocks

History offers a perspective on tariff-related market volatility. In April 2025, markets dropped 19% on tariff news—eerily similar to December 2018’s 19% decline over trade tensions. In both cases, markets recovered as investors recognized the temporary nature of the disruption. Both recoveries were swift once investors had better visibility into the impact and scope of the tariffs on industries and trading partners.

This pattern suggests markets can adapt to tariff policies more readily than economists predict, especially when those policies generate tangible economic benefits. The chart speaks for itself:

I am proud of the Gatewood Investment Committee and its successful navigation of the market correction this year. On the morning of April 7^th, when the market was at its low point for 2025 (easy to see this in hindsight, hard at the time), our CEO said the following to our advisors at our Monday morning all-hands meeting:

“I would keep some powder dry. Since 1957, we’ve had 12 corrections in the S&P 500 greater than 20%. Assuming we’re in a bear market now, half of them were between 20-30%, three were between 30-40%, and another three were greater than 40%. If you have a lot of cash, don’t overcomplicate it. Invest half now, another quarter at a 30% drop, and go all-in, buying everything you can at a greater than 40% drop. You might only get one or two opportunities at that level in your lifetime.”

–Aaron Tuttle CFA® CFP® CLU® ChFC® | Partner | Chief Executive Officer

Since April 7th, the S&P 500 has risen by over +25%. Our clients are the beneficiaries of our continued commitment to long-term, methodical investing on their behalf. That’s the Gatewood way.

The Bottom Line: Tariffs May be the Only Tool We Have Left

We can’t cut our way out of this deficit at least for now, D.O.G.E. proved that. We can’t tax our way out through income taxes—the Laffer Curve won’t allow it. We can’t inflate our way out without destroying the currency. And while growth will certainly help, our fiscal situation requires exploration of all possible revenue sources.

That leaves tariffs as one of our most viable short-term options for meaningful deficit reduction until the country is ready for major changes to how the government collects revenue, what services it provides its citizens, and the cost of those services.

Tariffs have the potential to generate substantial revenue, though with significant distributional consequences. Tariffs create geopolitical leverage. Tariffs can strengthen strategic industries when properly targeted. The impact of tariffs may fall unequally on exporters, importers, nations, and consumers.  They offer a possible path to start closing the deficit before it reaches crisis levels.

The key is honest acknowledgment of their costs and who absorbs these costs: the regressive burden on lower-income households if passed through, the hidden effects of corporate absorption flowing through financial markets, the impact on exporters and importers, and the critical importance of strategic rather than blanket implementation.

You don’t have to love tariffs to recognize their potential impact as a bridge solution until the country is ready for significant changes to how the government collects revenue and spends. At this point, they represent one of the only tools with a credible shot at improving our fiscal trajectory before time runs out, provided we implement them thoughtfully rather than as a blunt instrument.

The deficit is the fire. Tariffs are the hose. But we need to aim carefully, or we risk dousing the wrong things while the real problem continues to burn.

Curious About the Counterpoint?

Read Gatewood CEO Aaron Tuttle’s perspective on why tariffs might distract from the real work of fiscal reform.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal.  No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Read More About How These Legislative Changes Impact High Earners →

[Updated as of 07/09/2025]

On July 7, 2025, the “One Big Beautiful Bill,” a major tax and spending package we’ve been closely tracking, was officially signed into law by the President. We’ve broken down the new changes to help you easily understand how this might affect you, your family, and your financial plans.

What’s in the Final Law?

Permanent Lower Taxes for Individuals

Good news! Lower tax rates and the bigger standard deduction that came from the 2017 tax law (often called the TCJA) are now permanent. This means most people will continue paying less in taxes long-term.

Increased SALT Deduction Cap

If you live in a state with higher taxes, you’ll appreciate this one: The deduction limit for state and local taxes (SALT) has increased from $10,000 to $40,000. However, this benefit phases out if your income is above $500,000.

Special Deductions for Workers and Seniors

• No Federal Tax on Tips and Overtime: Workers who rely on tips or overtime pay won’t pay federal taxes on these earnings between 2025 and 2028, as long as income stays under certain limits ($150K individual/$300K family).
• Extra Deduction for Seniors: If you’re 65 or older, you’ll get an extra deduction ($6,000 if single, $12,000 if married), helping reduce or eliminate taxes on Social Security and other income. This deduction phases out at higher income levels.

Estate Tax Exemption Increase

The exemption for estate taxes is now permanently set at $15 million per person, helping families pass more of their wealth to their heirs without tax penalties.

Good News for Business Owners

• Bonus Depreciation: If you’re investing in your business, you’ll be able to write off 100% of qualifying expenses immediately (from 2025–2029).
• Section 179: Small business owners can now immediately expense up to $2.5 million of equipment, helping with cash flow.
• Research and Development: If your business invests in research, new rules let you write off these expenses more easily through 2029.
• QBI Deduction: The 20% deduction for pass-through business income is now permanent, and it phases out gradually for high earners, rather than disappearing all at once.

Energy and Community Investments

• Clean-energy tax credits are being reduced, but you can still access some incentives for solar and electric vehicles under stricter rules.
• Opportunity Zone investments continue, especially encouraging investment in rural and underserved communities.

Families and Children Benefit Too

• A new “Trump Savings Account” allows families to contribute up to $1,000 per year per child born after 2024, offering tax-friendly growth potential.
• Child tax credits have increased, providing additional support for families.

Social Program Changes

• There are new, stricter work requirements for Medicaid and SNAP (food stamps). While this is intended to encourage employment, it may affect some families negatively.

What Did NOT Pass?

• The corporate tax rate stays at 21%. It was not reduced to 15% as previously proposed.
• The estate tax was not eliminated, just increased significantly.
• Taxes on Social Security benefits were not completely removed, although many seniors will effectively see little to no tax on their benefits due to the senior deduction.

Who Benefits, and Who Might Face Challenges?

Winners:

• Middle-income households due to lower taxes and increased deductions.
• Small and medium-sized business owners with more tax incentives.
• Families who can use the higher estate exemptions.
• Seniors benefiting from additional deductions.
• Families with young children through new savings opportunities.

Those Facing Challenges:

• Higher earners in high-tax states due to limited SALT benefits.
• Consumers and businesses involved in renewable energy due to fewer incentives.
• Lower-income households impacted by stricter Medicaid and SNAP requirements.

We understand that these changes might have mixed impacts depending on your situation. Our priority is making sure you have a clear, easy-to-follow plan.

How Gatewood Wealth Solutions is Here for You

We’re already working to help our clients:

• Understand exactly how these changes impact your unique situation.
• Adjust your strategies to make the most of new opportunities.
• Seek to ensure you’re well-prepared and protected from unintended consequences.

As always, please reach out to us if you have questions or would like personalized advice on navigating these new changes. We’re here to guide you every step of the way.

[Original Article from 06/03/2025]

On May 22, 2025, the U.S. House of Representatives narrowly passed a nearly $4 trillion tax bill known as the “One Big Beautiful Bill” by a 215-214 vote. The legislation includes the most significant tax changes proposed since 2017, including permanent extensions of key provisions from the Tax Cuts and Jobs Act (TCJA), new deductions, and revised rules for both individuals and businesses.

While this is a major step, it is not yet law. The bill now heads to the Senate, where changes are likely. The administration has signaled an interest in seeing legislation finalized by July 4, though many expect the timeline may extend into August or beyond, depending on the pace of negotiations.

Here’s what you need to know — and what we’re doing to help you prepare.

Key Highlights from the House Bill

For Individuals:

• Permanent extension of TCJA provisions, including lower individual tax rates, an expanded standard deduction, and repeal of personal exemptions.
• Increased child tax credit to $2,500 per child for tax years 2025 through 2028.
• Higher SALT deduction cap, raising the limit from $10,000 to $40,000 for households earning under $500,000, with the cap and income threshold indexed by 1% annually through 2033.
• New above-the-line deductions for seniors ($4,000), tip income, overtime pay, and up to $10,000 in U.S. auto loan interest—each subject to income limits.

Estate Planning Updates:

• Increased lifetime exemption for estate, gift, and generation-skipping transfer taxes to $15 million starting in 2026, indexed for inflation. This builds on the existing TCJA levels, which reach nearly $14 million in 2025.

For Business Owners:

• Bonus depreciation restored at 100% for qualifying assets placed in service between 2025 and 2029.
• Section 179 expensing limits increased to $2.5 million, with a $4 million phaseout threshold.
• Domestic R&D expensing reinstated for 2025 through 2029 under a new Section 174A structure.
• Section 199A (Qualified Business Income Deduction):
  • Deduction rate increased from 20% to 23% starting in 2026.
  • Phaseout reform: For service businesses, it expands eligibility and the deduction phases out gradually—reducing by 75 cents for each dollar of income over the threshold—making planning more predictable and makes the deduction permanent. (I removed the comma in this sentence.)
  • Expanded eligibility: Certain dividends from Business Development Companies now qualify for the deduction.
  • Permanence: The deduction is made permanent, ending its previous 2025 sunset.

Other Notables:

• Energy credit repeals and phaseouts: The legislation rolls back tax credits from the Inflation Reduction Act, affecting wind, solar, and battery storage projects, and potentially increasing household energy costs.
• Opportunity Zone extension through 2028, with new incentives for rural investment.
• International and reciprocal taxes, including changes to GILTI, FDII, BEAT, and new retaliatory taxes for countries imposing “unfair” taxes on U.S. firms.
• Medicaid & SNAP Changes: The bill imposes stricter work requirements for Medicaid and the Supplemental Nutrition Assistance Program (SNAP), potentially affecting millions of low-income Americans.
• Introduction of “Trump Savings Accounts”: The bill creates $1,000 “Trump savings accounts” for children born after 2024, offering tax-deferred savings with capital gains tax rates on withdrawals.
• Student Loan Forgiveness Repeal: The legislation repeals student loan forgiveness options under President Biden’s SAVE plan and introduces new repayment plans.
• Defense & Border Security Funding: The bill allocates $150 billion to defense spending and $70 billion to border security, including funding for mass deportations and border infrastructure.

What Happens Next?

The Senate is expected to take up the bill in June, possibly bypassing committee review in favor of direct negotiations. Any significant changes made by the Senate would require another vote in the House before the bill can be enacted. While many core elements of the bill enjoy broad Republican support, there are competing priorities among Senate members — particularly around energy credits, international taxation, and the scope of permanent provisions.

How Gatewood Is Preparing Our Clients

With major tax changes on the horizon and year-end planning season approaching, timing and strategy will be critical. At Gatewood Wealth Solutions, we’re preparing our clients for all possible outcomes — and we’re starting now.

Here’s how we’re helping:

• Running personalized tax scenarios under both current law and the proposed changes, so you can make informed decisions now — not after the fact.
• Identifying strategic opportunities to leverage new deductions, avoid phaseouts, and optimize entity structures and income timing.
• Reviewing estate and business plans to take advantage of proposed changes, including the increased estate exemption and favorable treatment of business investments and income.

You don’t need to wait for the final vote to start planning. Strategic action today can create lasting benefits regardless of how the final bill takes shape.

If you’re ready to review your plan or want to understand how this legislation could impact your financial goals, let’s talk. We’re here to guide you through it — with clarity, strategy, and purpose.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

“This Time it’s Different.”

The markets have given us a lot to digest lately. From shifting tariffs under the Trump administration to Elon Musk’s influence on the rise (and rollercoaster) of DOGE, plus rapid changes in federal policies—uncertainty has been the dominant theme. And if there’s one thing markets hate, it’s uncertainty. But while the headlines may suggest that “this time is different,” we’re reminded again that history often tells a reassuringly familiar story: this too shall pass.

The Uncertainty Factor

We’re seeing how quickly investors react to potential trade wars, personnel shifts, and talks of cutting wasteful or fraudulent spending. When so many unknowns hit at once, markets struggle to price it all in. Yet history reminds us that markets have weathered many storms before.

When COVID-19 first struck, markets plummeted before recovering in record time. That tells us something about how investor psychology works: once the most severe unknowns become known—even if they’re negative—markets tend to re-price and move on.

A Look at Recent Volatility

In order to put the current volatility in context, consider the COVID-19 crash.

• Worst days since 2020:
  • March 16, 2020: -11.98%
  • March 12, 2020: -9.51%
  • March 9, 2020: -7.60%
• Best days since 2020:
  • March 24, 2020: +9.38%
  • March 13, 2020: +9.29%
  • March 26, 2020: +6.24%

In just 33 days, from February 19 to March 23, 2020, the S&P 500 fell 33.9%—a truly historic plunge. Yet, by August 18, 2020, barely six months later, the index had fully rebounded, even though the world was far from normal.

What changed? By March 23, the uncertainty about global shutdowns was, to some degree, factored in. The market had enough information to price the situation and begin its climb.

Perspective Through History

Since 1980, the S&P 500 has had an average intra-year drop of 14%. That means, in any given year, you can expect some sharp swings. Despite these drawdowns, the index still finished positive in 34 of the last 45 years.

Yes, tariffs can rattle short-term confidence. Yes, DOGE hype can come and go. Yes, federal cuts can spark anxiety. But these are just the latest in a long history of events that cause market volatility. Historically, markets have proved resilient in the face of everything from recessions to pandemics and they tend to reward disciplined investors over time.

The Power of Diversification

The current landscape also underscores why diversification is critical.

• International holdings are significantly outperforming U.S. stocks this year.
• Value stocks have been outpacing growth stocks.
• Fixed income offers yields comfortably in the 4% range, providing stability amid the market’s daily fluctuations.

If you’re only invested in a narrow slice of the market, you feel every bump. A well-diversified portfolio, on the other hand, can help cushion the ride when uncertainty hits.

Staying Disciplined in Uncertain Times

As the news cycle churns, it’s easy to think, “This time is different.” But if recent history has taught us anything, it’s that overreacting to short-term market swings can often do more harm than good.

• Volatility is part of the investing journey.
• Uncertainty is inevitable.
• Long-term perspective usually wins the day.

Whether the market is panicking over tariffs, new technologies, or dramatic fiscal changes, remember that reacting out of fear can lock in losses and undermine the very reason we invest: to grow our wealth over time.

The Bottom Line

Market uncertainty is never comfortable, but it’s not new. We’ve seen swift downturns before, and we’ll see them again. Historically, markets reward those who stay focused on their goals rather than getting caught up in the headlines.

When uncertainty is high, it helps to revisit your investment plan, lean on diversification, and keep a steady hand on the wheel. While the players and policies may change from one administration to the next, what remains is the market’s ability to adapt and recover, often more quickly than we expect.

In other words: this too shall pass.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA & SIPC.

Introduction

Tariffs have long been a powerful but controversial tool in economic policy, influencing trade balances, industry growth, and global relations. While tariffs are often used to protect domestic industries and jobs, they can also increase costs, disrupt supply chains, and provoke retaliatory trade measures.

With President Donald Trump proposing new tariffs in his second term, it is critical to examine the potential economic benefits and consequences of these policies.

How Tariffs Work & Why Politicians Use Them

A tariff is a tax imposed on imported goods, making them more expensive and giving domestic industries a competitive edge. Governments justify tariffs for several reasons:

• ✔ Protecting Domestic Industries – Shields local businesses from cheaper foreign competitors.
• ✔ Reducing Trade Deficits – Encourages domestic consumption over imports.
• ✔ Leverage in Trade Negotiations – Used as a bargaining tool in international trade deals.
• ✔ Revenue Generation – Provides direct tax revenue to the government.

President Trump previously implemented tariffs as part of his “America First” trade policy. In his second term, he has proposed tariffs on imports from Canada, Mexico, and China, as well as reciprocal tariffs to match the duties imposed on U.S. goods by other countries.

While these measures aim to strengthen U.S. industry, they also carry potential risks, including higher consumer prices and trade retaliation from global partners.

The Pros & Cons of Tariffs: Who Wins and Who Loses?

✔ Potential Benefits of Tariffs

• Job Protection & Domestic Growth – Industries like steel, textiles, and technology benefit from reduced foreign competition.
• Stronger Local Manufacturing – Encourages companies to reinvest in U.S. production rather than outsourcing.
• Negotiation Leverage – Tariffs pressure foreign nations to renegotiate trade agreements that benefit American businesses.
• Short-Term Gains for Farmers & Key Sectors – Temporary relief from low-price competition abroad.

Example: U.S. steel tariffs helped boost domestic production but raised costs for automakers and construction firms.

❌ The Negative Effects of Tariffs

• Higher Costs for Consumers – Businesses pass tariff costs onto consumers, raising prices for food, electronics, and automobiles.
• Inflationary Pressures – Tariffs increase overall inflation, leading to higher interest rates and slowing economic growth.
• Retaliatory Tariffs Hurt U.S. Exports – Countries like China and the EU respond by targeting American industries (e.g., soybeans, whiskey).
• Disruptions to Global Supply Chains – Industries reliant on imported raw materials (e.g., automotive, tech, and manufacturing) face higher costs and production delays.

Example: The U.S.-China Trade War (2018-2020) led to higher prices on imported goods, costing the average American household $1,277 per year.

Impact on Inflation & Global Trade

One of the biggest risks of tariffs is inflation. As tariffs increase the cost of imported goods, companies pass these expenses to consumers, raising prices across the economy.

✔ Short-Term Effects: Higher prices on targeted imports (e.g., electronics, clothing, food).

❌ Long-Term Effects: Persistent inflation pressures force the Federal Reserve to raise interest rates, slowing investment and job growth.

Globally, tariffs disrupt trade flows as companies shift production to countries with lower trade barriers. Nations impacted by U.S. tariffs may form alternative trade agreements, reducing American influence in global markets.

Example: After U.S. tariffs, China increased soybean imports from Brazil, permanently reducing U.S. market share.

Are Tariffs a Sustainable Economic Strategy?

✔ When Used Selectively: Tariffs can protect key industries and pressure foreign nations into fairer trade deals.

❌ Overuse Leads to Economic Slowdowns: Broad tariff policies raise costs, fuel inflation, and trigger global trade conflicts.

With President Trump’s proposed second-term tariffs, policymakers must carefully weigh short-term benefits against long-term risks. If implemented without strategic adjustments, tariffs could exacerbate inflation and slow economic recovery.

Conclusion: Finding a Balanced Trade Approach

Rather than relying solely on tariffs, the U.S. could consider:

✔ Trade Agreements that Promote Fair Competition (e.g., stronger deals with allies).

✔ Tax Incentives for Domestic Manufacturing (instead of penalizing imports).

✔ Investments in Workforce Development & Technology (to make U.S. industries more competitive globally).

Ultimately, tariffs should be used as a precise tool, not a broad economic policy. While they can shield domestic industries, their long-term costs—higher prices, inflation, and trade retaliation—must be carefully managed.

What’s Next?

As the Trump administration considers new tariffs, businesses and consumers should prepare for potential price increases, supply chain adjustments, and shifts in global trade dynamics. The key to long-term economic success lies in balancing protectionist policies with sustainable growth strategies.

Tariff Impacts: Positives and Negatives.

The table below outlines the potential positive and negative impacts of tariffs across various industries and countries. While tariffs can provide benefits such as protecting domestic industries and increasing government revenue, they also introduce challenges such as higher consumer prices, trade disruptions, and economic slowdowns.

Gatewood Investment Committee

 

Christopher Arends, CFA®, CMT®, CAIA®

Aaron Tuttle, CFA®, CFP®, CLU®, ChFC®

Jerry Pan, MSA

Calvin Racy

 

 

INTRODUCTION

 

If you’ve followed politics for any length of time, you’ve heard it all before: “This is the most important election in history.” Or, “It’s different this time.” These phrases are part of the cycle, resurfacing every few years. Just last week, our preferred custodian, LPL Financial, echoed the sentiment with a blog titled “This Time Will Be Different.”

 

Maybe they’ll be correct, but we doubt it.

 

POLICY SHIFTS & MARKET RESILIENCE

 

Yes, policy changes are inevitable. If the Democrats have a strong showing, we will see higher taxes. Their proposals mostly fall within the historical range for tax brackets and aren’t entirely new for markets or taxpayers. Sure, higher taxes will pressure corporate profits, but resilient companies have shown they can weather these shifts and generate growth.

 

Consider Alphabet (Google’s parent company), which reported 15% revenue growth last week. Democrats often push for breaking up Big Tech over anti-trust concerns, while Republicans challenge their censorship policies. However, Alphabet remains resilient, growing profits and making prudent investments regardless of which party is in power. Strong businesses can navigate through regulatory pressures and continue to reward shareholders.

 

WHAT CAN WE EXPECT?

 

Markets dislike uncertainty, and the weeks leading up to an election often bring plenty of it. Historically, election years bring October volatility as markets brace for uncertainty, frequently followed by a rebound in November and December when outcomes become increasingly certain.

 

In the short term, we may see markets react by favoring specific market factors, such as certain Sectors (Financials vs. Technology), Size (Large vs. Small Cap), or Geographies (Domestic vs. International Developed and Emerging Markets), depending on the anticipated policy impacts of the winning party. In the long term, politics will be noisy, and allocating to good businesses at a fair price has always won.

 

FINAL TAKEAWAY: HISTORICAL MARKEY TRENDS & OPPORTUNITY

 

We’ve been showing election slides all year, and here’s the recurring theme: markets tend to rise over time, regardless of whether a Democrat or Republican is in the White House. Gridlock, which remains a probable outcome, has been the preferred outcome for stock market returns. In any case, opportunities will exist under all outcomes. Regardless of the outcome, we’re always prepared to identify and act on those opportunities. We’ll close with perspective from Dave Ramsey “What happens at your house is a whole lot more important than what happens in the White House.”

 

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal.  No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Welcome to our GWS quarterly summary and 2022 outlook. Each quarter, we review final market numbers and data to reflect on key events and share our insights with our clients and community. As always, we’re here to give you actionable advice so you can make informed decisions with your money.

If you’re a subscriber to the Weekly Market Insight webinars my colleague Chris Arends and I host every Wednesday at 3:30 p.m. CT, you know we like to stick to a few key themes to update each week. Let’s start by reviewing our 2021 themes and see where they landed — as well as where we see each heading in 2022.

Theme #1: Covid-19

 

2021 Recap: As predicted, Covid-19 hung around in the spring, wreaking havoc on the market. After that, the market largely ignored it — and I think I speak for everyone in saying that the pandemic is hopefully behind us. The virus remains with us, but as the susceptible population drops, the severity of the outbreaks declines. ​ 2022 Predictions: This is likely Covid-19’s last year as a market-moving threat. ​

The omicron strain is less severe and more transmittable than alpha, and the susceptible population is declining​. This virus is unlikely to continue as political movement, as it is perceived to cost the democrats in polls and recent elections.

—

Theme #2: Monetary Policy

 

 

2021 Recap: Early last year, we said central banks would be accommodative and might be the only game in town. Central banks certainly were accommodative, but you could make an argument that there are lots of ways of thinking and infrastructure available to build out that accommodative strategy. We had anticipated the Georgia runoff election would be another major player in the monetary policy game; however, without the full Build Back Better Bill passing, it didn’t have much of an impact. Monetary Policy

That leaves the question, do we think Congress will try to scale down the rest of the rest of the bill and get it passed? Absolutely — politicians love spending! But the focus of the bill will likely change, largely due to the burgeoning power of populism.

Speaking of populism, this “people over the elite” stance toward politics is quickly gaining ground. Just ask New Jersey’s longtime state Senate president, Democrat Steve Sweeney. Last year, he handily lost to a new candidate, Edward Durr, who spent just $153 on his campaign — but had an R at the end of his name in a very blue area of the country. I am sure this concerns democrats, as many are not seeking reelection.

2022 Predictions:

As you can imagine, democrats are getting concerned about what this year’s election will look like. They’re thinking, “How can I prevent a red wave — or at least prevent it from taking me out?” That’s where the focus will be going into the new year.

We’re also predicting that central banks will be forced to tighten monetary policy to maintain credibility, as inflation remains elevated 6-8% (before moderating late Q4 ~4%). There are still three pending rate hikes closing 2022 at 0.75-1% of the Target Fed Fund Rate.​

—

Theme #3: Domestic Economy

 

 

2021 Recap: Let’s talk domestic economy. We saw about 4.5% growth1 this year, which is somewhat to be expected considering the amount of money the Fed poured into economy. We also experienced significant inflation, which was not a surprise to us at GWS, but was a surprise the market. Many people believed inflation would be transitory. After all, the Fed did a lot of money printing in 2008, and inflation hasn’t been around for decades.

However, some of the forces that were at play then have weakened in present day, especially in the labor market. We’ll discuss this in further depth during a future Weekly Market Insights.

As for currency, the dollar strengthened, and the amount of money created by the Federal government caused an unprecedented demand for imports.

2022 Predictions:

In 2022, wage growth continues to increase as a percentage of GDP​. The labor force participation and technology improvements will likely dampen inflation in Q4. ​

The USD still remains the fastest turtle. Rate hikes maintain strength, but uncertainty around CB policy keep us neutral on USD.​ GDP will likely stick around 4 – 4.5% growth​ with corporate profits decreasing as a percentage of GDP.​

With Congress struggling to push through large stimulus bills, the Federal Reserve beginning to taper, and us approaching two years since the last market pullback, we expect a correction in 2022. The question is when? We know they won’t ring a bell at the top. Be diligent and be ready!

—

Theme #4: International Economy

 

2021 Recap: Moving internationally, global GDP came in above 5%. China, Europe, and Japan continue to struggle economically due to demographic issues. 2022 Predictions: This year, we anticipate GDP to be about 4.25 – 4.75%, led by emerging markets (less China). The Chinese markets remain volatile, causing us to begin 2022 with an underweight as we continue to evaluate regulatory risk. ​ Europe and Japan continue to struggle.

—

Theme #5: Stocks

 

 

2021 Recap: Last year, valuations were stretched, which led to more names in the index​. The recession cleaned up balance sheets, Earnings Per Share (EPS) expanded, and technology continued to lead after the value rotation​. Finance and banking rose out of the bottom. ​ 2022 Predictions: We expect valuations to become more moderate as terminal values contract with rising interest rates and share of corporate profits decreases.

EPS growth likely will stay strong, with target EOY S&P 500 earnings at $222 (8% earnings growth). This places the fair value at 5,000 – 5,100.​ Sectors to watch include Financial Services, Real Estate, and Technology.

—

Theme #6: Fixed Income

 

2021 Recap: Municipal bonds tend to perform well if there’s a blue government, and this held true in 2021. Rates remained low, but inflation was higher than yields​. We would argue we have a debt bubble … but one that is not quite ready to pop. Fixed Income

 

2022 Predictions:

It’s likely that interest rates will continue to rise, potentially putting the EOY 10-year Treasury Yield at 2.25 – 2.5%​. Credit spreads will probably continue to widen modestly.​ Aggressive Investors will remain underweight to FI with the potential for FI and Equity to be correlated in pullbacks. ​Muni bonds look to be volatile and tied to tax policy, with a target duration of 0-3 years. 

Conclusion

Clearly, there’s quite a bit of market activity to watch for in 2022. From Covid-19’s lessening impact on the market, to tightened monetary policy and emerging markets leading international GDP growth, we’ll keep you updated as these and other themes emerge.

Regarding a correction, we continue to believe we have a debt bubble. The Barclays Agg was negative last year in nominal dollars. CPI was 7% on the last release, so they lost tremendous value. Bonds are likely to continue to struggle, they can act as a ballast but keep your duration short to remove the risk of rising rates. The Fed will likely step in if the market begins to unwind.

Our Commitment

As always, the GWS Investment Committee is committed to the following investment management goals for our clients in 2022:

1. To pursue long-term returns that first and foremost strive to help clients work toward all goals in their financial plans.

2. To seek excess return above each portfolio’s benchmark over a three-year trailing time period and a full market cycle, in order to hopefully cover client fees and add surplus to their portfolios.

3. To implement investment strategies that align with each client’s personal volatility and benchmark sensitivity to help them remain confidently invested and long-term focused.

We’ll continue to provide updates on these and other market happenings, so be sure to subscribe to our YouTube channel so you never miss a Weekly Market Insight webinar (Wednesdays at 3:30 p.m. CT). We’ll see you there!

—

Disclosures

The opinions expressed are those of Aaron Tuttle and Gatewood Wealth Solutions as of the date stated on this material and are subject to change. There is no guarantee that any forecasts made will come to pass. This material is for general information only. This material does not constitute investment advice and is not intended to endorse any specific investment or security.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested directly. Returns represent past performance, are not a guarantee of future performance, and do not indicate any specific investment. Diversification and strategic asset allocation to not assure a profit or protect against loss.

When interest rates rise with fixed income securities and bonds, bond prices usually fall, because an investor may earn higher yield with another bond. Moreover, the longer the maturity of a bond, the greater the risk. When interest rates are at low levels, there is a risk that a significant rise in interest rates can occur in a short period of time and cause losses to the market value of any bonds that you own. The bond’s issuer is obligated to return the investor’s principal (original investment). As a result, high-yield bonds present greater credit risk than bonds of higher quality. Bond investors should carefully consider interest rate risk, credit risk, liquidity risk, securities lending risk, repurchase, and reverse repurchase transaction risk.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA & SIPC.

1 U.S. Bureau of Economic Analysis, December 2021

2 World Bank, Jan. 11, 2022

Over the last couple of decades, China has experienced more growth and development than we’ve seen in economic history. However, they typically measure growth using the size of their Gross Domestic Product (GDP). That’s a crude metric to use for the ability to project your power into the world.

Above is a chart showing global GDP shares from a historical perspective. It is timestamped from 1000 A.D. to the present and represents the country’s percentage of the worldwide GDP. Production is based on how many people a country has, but it doesn’t tell you about its wealth within industries.

 

For example, in the 1800s, the United Kingdom’s economy grew dramatically, but the size of China’s economy dwarfed it. However, at the same time, the Opium Wars occurred, where the U.K. left England and defeated China time and time again. So, when we look at wealth per individual in this example, you can conclude many more resources were devoted to the English than to China.

Productivity of China

The graph above looks at how productive people are based on their tools in the economy. So, how effective are individuals in China? Not very productive at $11,000 in GDP, but we can see that their ability to produce products through the nineties and onward was multiplying. This is important because China’s debt grows substantially, and we haven’t seen any production increases. Up until recently, China has also been expanding its money supply five times the federal reserve rate.

 

Tech Crackdown

When doing business in China, you’re doing business with a communist party with much power over your business. They’ve shown this in the past with tech crackdowns as they have increased regulation, implemented antitrust fines, banned developments of D.D. (a ride-sharing app), and taken over private education.

Market Trades – China vs. the United States

Analyzing how the market has been trading a year to date, you can infer more volatility in the Chinese index. But we see a big run-up in the market in 2021, which since has decoupled from the U.S. market. As a market share, the United States has been significantly outperforming the Chinese market. However, market trades are not the only issue China is dealing with.

 

Age Ratio

The age ratio graph shows the young population at the bottom, the working people in the middle, and the elderly at the top. One of the big stories on why China grew drastically is because they have a high population and low labor costs. That means that as labor gets more expensive, there will be an issue with age ratios as China’s population peaks at 1.44 billion in 2029 before entering an “unstoppable” decline, according to a Chinese Academy of Social Sciences study released in January. Also, take into consideration China’s one-child policy. One legacy of the one-child policy is that each generation stands to inherit the wealth of four grandparents and two parents–the flip side of the “4-2-1” phenomenon.

 

Keep up to date with global GDP shares and more every Wednesday at 3:30 p.m. C.T. And to learn more about this week’s Weekly Market Insights, be sure to listen to our recap video on our YouTube channel and SUBSCRIBE!

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For detailed performance metrics, please don’t hesitate to contact your lead advisor. And, in the meantime, be sure to keep up to date on Gatewood Wealth Solutions through our daily 3x3s and our weekly market insights on our YouTube, LinkedIn, and Facebook accounts.

 

Disclosures:

 

Economic forecasts may not develop as predicted, and there can be no guarantee that strategies promoted will be successful. Therefore, the opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

All performance references are historical and are no guarantee of future results. In addition, all indices are unmanaged and may not be invested directly.

 

Securities and advisory services are offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. All investing involves risk, including possible loss of principal. No strategy assures success or protects against loss.

 

The opinions in this material do not necessarily reflect the views of LPL Financial.