LPL suggests some investors should look beyond conventional fixed-income vehicles to meet their income needs.
“For suitable income-oriented investors, adding more credit-sensitive sectors, such as bank loans and emerging market debt, to their portfolios may help compensate for the reduced income potential of a low-rate environment, but we would still recommend that high-quality bonds make up the bulk of any bond allocation,” LPL said in its report.
Taxes
LPL’s general take is that taxes might change the market’s path, but not its direction. Its view is that the Biden administration’s proposed tax hikes on both corporations and wealthy households, which are designed to pay for the president’s expansive plan to “reimagine and rebuild a new economy,” will likely be reduced in scope during negotiations with Congress.
President Biden proposes raising the top tax rate on ordinary income to 39.6% from 37%, and capital gains and taxes on those who earn more than $1 million to a maximum of 43.4% from the current 23.8%. LPL noted that just 0.32% of the population makes more than $1 million a year, so tax increases aimed at that cohort—if enacted—wouldn't impact many people.
That said, LPL remains concerned about tax policy. “Historically higher personal tax rates have had only a modest impact on markets, but higher corporate taxes would have a direct impact on earnings growth, potentially limiting stock gains,” it said.