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A Look at the
Second-Half Outlook
Taxes, Interest Rates, and IPOs  Top the List of What to Watch
A poll conducted at the beginning of 2010 found that 45% of investors believed the economy would be stronger in a year’s time. Just 36% of adults polled felt the same way.1
Here we are halfway through the year and there’s still no clear verdict on whether investors were justified in their optimism. But there are a number of developments on the horizon that could be important to investors. What happens this year could affect not only the value of your portfolio but also tax rates and the outlook for stocks.
The Election and Your Taxes
Elections tend to cast a long shadow over the financial world, and the upcoming mid-term elections in November are promising to carry on the tradition. Given the uncertain future of U.S. tax policy, the stakes could be quite high. Tax rates for many taxpayers are legislated to increase automatically in 2011 after the temporary provisions in the 2001 and 2003 tax-cut packages expire on December 31, 2010. It’s possible that the debate over taxes will feature prominently in many congressional races, but we will more likely see tax policy take center stage after the election results are in.
 The Return of Interest Rates
The Federal Reserve started the year off with a small hike to the discount rate, which has little influence over consumer interest rates. But the rate hike was seen as an indication that the Fed is setting the stage for a much-anticipated increase in the federal funds rate, which has a greater influence on consumer interest rates. The consensus among a key panel of economists is that the Fed will raise the federal funds rate in 2010 but keep the rate below 1% until it has evidence that the economy is growing solidly and unemployment is falling.2
Possible IPO Comeback
Although significantly more companies went public on U.S. stock exchanges during the first quarter of 2010 than during the first quarter of 2009, analysts weren’t exactly jumping for joy. Many of the offerings priced below their projected ranges, part of a global trend in which initial public offerings were being postponed or fetching lower-than-expected prices.3
The good news is that the pressure on the IPO market is likely to cause the investment banks, which partner with private companies to take them public, to be highly selective during the second half of the year as they seek to rebuild confidence in the IPO market. If the move is successful, more private firms may go public, which is usually a good sign.
Forecasting has its limitations, but it’s always a good idea to be aware of what may be on the horizon. If you have concerns about how to react to these or other upcoming developments, we can help.
1) Rasmussen Reports, 2010
2) The Wall Street Journal Economic Forecasting Survey, February 2010
3) The Wall Street Journal, February 21, 2010; Hoover’s, 2010
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