Daily Commentary

MarketMinder’s View: Like the headline here says, the Social Security Administration announced today that its cost-of-living adjustment (COLA) will raise Social Security benefits 3.6% in 2027, which works out to $75 more per month on average. Of course, your mileage may vary. We think this highlights two key points for beneficiaries. First, as the article explains, CPI-W determines the COLA, but that probably doesn’t match your cost of living, which is ultimately what matters most for your personal finances. If your expenses rose less than 3.6% y/y, great! But if not, some budgeting may be in order, particularly for the items your benefits fund. Second, while COLAs help “millions of Americans cover rising everyday costs, including groceries, routine bills and health care,” which we agree is critically important, we also think relying on COLAs alone in retirement isn’t the optimal path. Investing throughout your retirement, in a portfolio whose asset allocation matches your goals, cash flow needs, time horizon and comfort with volatility, can also deliver returns to help you outpace inflation. With foresight, planning and discipline comes greater financial flexibility—and freedom.

MarketMinder’s View: With the approach of October 28’s UK Budget reveal, talk of tax changes has been hot and heavy lately, as the government floats trial balloons to gauge public response. One such idea, backed by several senior members of the Labour government, has been raising the lower tax rate charged on realized capital gains—equalizing it with income tax rates of 20% - 45%. (Obviously, this touches on politics, so please note MarketMinder favors no politician or party, weighing only policy changes’ economic and market effects.) There is significant disagreement over the effects on tax receipts from this. One Treasury study hinted at herein found it would cut receipts by some £3.6 billion, as people defer realizing gains and wealthy people leave the country. Other analyses say it will raise billions. But now, no matter which camp you side with, it seems you can ditch that worry. Chancellor of the Exchequer John Healey has scrapped the idea of matching income and capital gains tax rates. This should lower uncertainty some ahead of the Budget’s release, but it doesn’t vanquish all capital gains uncertainty: There is a wide gulf between the current 18% - 24% capital gains rate and the 20% to 45% income rates. He could still raise capital gains rates a bit, even after popping this trial balloon. That said, given where the fears were, this should still prove a relief for markets, which will get Budget clarity in a mere two weeks.

MarketMinder’s View: According to Bank of America’s Global Fund Manager Survey, some 56% of responding managers are underweight French stocks. This is counterintuitively bullish news. Yes, the CAC 40 has underperformed eurozone stocks and the MSCI World this year. Yes, there are fears over French deficits and debt. And yes, some worry an extreme right- or left-wing candidate will win next spring’s presidential election. But for markets, the question is always whether such concerns are pre-priced, i.e., whether investors have already acted on them. The lag, plus this survey showing a record share of managers have a pessimistic view of the country’s markets, suggests they are largely pre-priced. Then the question becomes: Is reality likely to match the fear? Given France’s tax revenue easily funds debt service and the country’s deep political gridlock, we think a more benign reality than feared is likely. For more, see our October 5 commentary, Budgeting for French Debt Fears.