As the proposed $3.5 trillion infrastructure bill continues to receive pushback in the Senate—even from within party lines—looming tax hikes in 2022 have become an ever-increasing concern. According to Kevin Simpson, Capital Wealth Planning founder and chief investment officer, tax increases next year is the most likely scenario.
“I'm pretty certain we're going to get tax hikes next year in 2022,” Simpson told Yahoo Finance Live. “None of us like that but we've got to pay for a pandemic that we didn't ask for and I think everything with respect to the stimulus that came so far was appropriate and necessary.”
In spite of this, he does not believe investors should change their investment strategies going into 2022.
“[Capital Wealth Planning is] not going to change the way we invest based on future tax implications,” Simpson said. “We're not going to let the tax tail wag the dog. And I don't think investors should [either].”
Simpson joined Yahoo Finance to discuss the latest in the markets as well as tax implications for the next year. Capital Wealth Planning is an institutional money manager based in Naples, Fla.
In the near-term, Simpson believes, the Delta variant of COVID-19 poses one of the most significant threats to markets and consumer/business sentiment. He cited this “true third wave” as being a contributing factor towards the disappointing August jobs report, which saw payrolls rise by just 235,000 against 733,000 expected and a revised 1.053 million in July.
Before tax hikes, a short-term pullback
As for opportunities that may be on the horizon, Simpson predicts a sizable pullback in markets before the end of the year.
“I'm expecting that we're going to get a 5% to 7% pullback here before the end of the year, probably after September option expiration into October,” he said. “So as you position portfolios, I think keeping a little dry powder makes sense. Buying a dip would be a really, really good opportunity.”
Simpson noted that there may be opportunities for investment in sectors such as industrials, materials, and energy, should the aforementioned pullback indeed materialize. And while it may be a futile effort to attempt to plan for the pullback and time the market, investors need not worry about a “massive correction” in markets until the Fed’s tapering plan comes into play and interest rates begin rising, Simpson argued.
“Market timing is something that's almost an impossible endeavor,” Simpson said. “We don't try to do it but positioning portfolios for a pullback means having a little cash on the sideline, taking a little profit on positions that have done very well—maybe writing some covered calls. And as we were talking about earlier, if you see a pullback you can certainly buy the dip and take advantage of it.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter: @thomashumTV