What the US fiscal cliff 'deal' will mean for investors

02 January 2013

Bestinvest’s Jason Hollands reveals what the US fiscal cliff “deal” will mean for investors

Back in October we said that whoever won the US elections, “a deal (to address the “fiscal cliff”) will ultimately happen: probably by reinstating Bush-era tax cuts”. Indeed this appeared to be what the market expected at that time.

Roll on a couple of months after some hair raising brinksmanship between the Republicans and Democrats, a deal of sorts has been approved by the US Senate and House of Representatives broadly as expected and on face value a lot like the outcome modelled by the Congressional Budget Office earlier in the year. This will see the Bush-era tax cuts retained for the vast majority of Americans and increases restricted only to those earning more than $400,000 per annum which represents a compromise from both sides of America’s political divide.

The deal reached is not a full resolution of the “fiscal cliff” as it fundamentally addresses one side of the equation: the extent of tax rises. Decisions over the depth of spending cuts have been deferred for reasons of pragmatism to provide more time to reach an agreement. In our view sizeable cuts in spending programmes are inevitable, with greater clarity to come in the months ahead.

So while the deal isn’t a comprehensive “grand bargain”, in our view it represents an important step forward and should put to rest those fears of a doomsday scenario. By averting widespread tax hikes, we don’t expect the recovery to be de-railed.

More importantly, it to a large degree removes another short term cause of uncertainty that has dented both business and market confidence. Many US businesses have held back on decision making over the last year, with North American M&A down around a quarter over the previous year. More confidence in the US should be supportive to market globally.

Although the outlook for growth across much of the developed world remains weak, our our view is that equities generally look attractively valued both relative to bonds and their long-term trends. Step by step, we have seen a number of uncertainties removed (US elections, Chinese leadership transition) and a more proactive approach from central banks both in Europe and the US. The combination of cheap equity valuations, attractive dividend yields and gradually improving market confidence should be supportive for equities in 2013 and beyond with our favoured markets being core Europe and Global Emerging Markets.”

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About Bestinvest:
Founded in 1986, Bestinvest has grown to become a leading private client investment adviser, looking after more than £4 billion of assets. We offer a range of investment services from Select for self-directed investors to Investment Advisory and Investment Management services for clients who do not have the time or inclination to manage their own investments. All of our services are underpinned by rigorous research aimed at identifying those fund managers we believe will deliver long-term performance. We also have a team of expert financial planners with nationwide coverage to help clients with their pensions, retirement or Inheritance Tax planning. At Bestinvest, we pride ourselves on offering the highest levels of professionalism and expertise with transparent, competitive prices. We are pleased that our greatest source of new business is from personal recommendations from existing clients.

Bestinvest has won numerous awards including Best Stockbroker for Customer Service (2012), Best UK Wealth Manager (2011) and Best Wealth Manager for Inheritance Tax and Succession Planning (2011) as voted by readers of the Financial Times and Investors Chronicle. We have also been awarded Best Discretionary Adviser (2011) by Money Marketing and Investment Adviser of the Year 2012 at the Professional Adviser Awards.

Headquartered in Mayfair, London, Bestinvest has 14 regional offices with 200 staff and is one of the fastest-growing UK private client advisory firms.

About Tilney

Tilney is a leading investment and financial planning firm that builds on a heritage of more than 150 years. The Tilney Group operates under the Tilney brand for Investment Management and Financial Planning and Bestinvest for execution-only investing. We look after more than £22 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Best Fund Platform and Best SIPP Provider at the 2017 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Group employs over 1,000 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.