Washington Watch: How midterm elections and Fed policy could impact your financial strategy

BILL NORTHEY: Hello, and welcome. I'm Bill Northey, senior investment director with the asset management group here at U.S. Bank Wealth Management. I'd like to welcome you and thank you for joining us today. The market environment is facing a unique set of circumstances. With rising inflation, a slowing global economy, and the US midterm elections right around the corner, there are a number of facets that we need to consider as we think about managing wealth for our clients. 
Today's goal is to talk through the factors that are contributing to this volatile environment and how you, as an investor, can better navigate the path ahead. In uncertain times like these, it is important more than ever to refocus on your goals and priorities, which is why it's important to have a financial plan that can guide you and is something that you can revisit through time as your circumstances change. As always, our wealth management teams are here for you if you have any questions or you want to talk through your specific circumstances or concerns. 
Before we get started on our topic today, we'd like to go over a few items of note to help familiarize you with the webinar platform that we're utilizing here today. It should look familiar to many of you. You have the ability to customize your screen. And you can resize any of the windows that are displayed in front of you by dragging on the edge or the corner of each box. You can also hit the X in the upper right-hand corner to hide any of the windows or modules that you don't want to see during the course of today's conversation. 
The buttons along the bottom also will give you the opportunity to control what you see on-screen. And you can reinstate any of the modules that you have previously hidden. It's very adaptable. Also along the bottom of your screen-- and this is important because we want to hear from you-- there is a tab labeled Questions. And if you click on that tab, you'll be able to submit any questions that you have during the course of our conversation today. And if we don't answer your question specifically as we go through the course of our conversation, we'll be sure to follow up with you directly afterward. 
So I am now pleased to introduce our guests for our conversation today. Today, we are joined by several of my colleagues here at U.S. Bank, all of whom, I'm proud to say, are repeat guests to our webinar series. Eric Freedman, chief investment officer for U.S. Bank Wealth and Institutional Asset Management, Kevin MacMillan, senior vice president for Government Affairs at U.S. Bank, and Kate Phelan, managing director, Trust Advisory at U.S. Bank Private Wealth Management. Kevin, Eric, Kate, welcome, and thank you for being a part of our panel today. 
ERIC FREEDMAN: Thanks, Bill. Great to be here. 
BILL NORTHEY: So today, our goal is to have you walk away with some key insights around the upcoming midterms and smart strategies that you might want to consider in the current environment to do a couple of things-- help you capitalize on opportunities that are always present in the capital markets, but also ways in which you can help to mitigate risk associated with the volatility inherent in capital markets. So today, to start, we're going to have Kevin outline some of the potential outcomes of the midterm elections. It will be a very interesting conversation. Kevin's been with us many times through the elections. He's had a good finger on the pulse of what's going on. In Washington, DC. 
Then Eric will discuss how those election outcomes could impact some of the capital markets, followed by a broader analysis of other key factors that we're watching in the current investing landscape and some helpful portfolio guidance as we consider that path forward. And then last but certainly not least, we'll bring in Kate to talk through some useful year-end planning considerations, given some of the topics that Kevin and Eric address throughout the early part of our conversation. So with that, let's go ahead and dive right in. And I'm going to have Eric and Kevin be a part of this first segment. 
So let's begin with a little bit of the historical context concerning the influence of midterm elections and the direction of the economy and capital markets. So Kevin, our resident Washington, DC expert, I'd love to turn the microphone over to you. And thanks for being here again. 
KEVIN MACMILLAN: Great, Bill. Thanks very much. It's wonderful to be with everybody today. So we have about 13 days until election day and midterm elections. They are historic elections. We are likely to see some significant changes in the composition of the Congress, perhaps the House and the Senate. We can talk about that in some detail. But what we've seen over the years is that these midterm elections are often a referendum on the state of the presidency and the president's party. And so that is really what is driving a lot of voters, driving the voters' minds, at least that we're seeing in polling and the outlook in the various districts. 
And there's a lot going on. We've got significant polarizing political events, economic and social issues that are at the top of mind of many voters, and not to mention foreign affairs and what's happening around the globe. So there is a lot on the docket. There's a lot happening around the world and domestically. And that's driving a lot of the voters' impressions and views and thoughts. 
So if we go to the next slide and we think a little bit about the history of these midterm elections and how they've turned out for presidents in the White House and the Oval Office, typically what we see is Republican gains when Democrats are in power and Democratic gains in Congress when Republicans are in power. And so if we look at back to President Clinton, President Bush, they both saw significant shakeups in their party control of Congress when they took office. Similar for President Obama and President Trump. So the headwinds are stiff if you are sitting in the Oval Office and you enter the midterms and you want to retain control of Congress and continue to move your agenda forward. I think that that is certainly what the Biden administration is experiencing right now. 
And if we go to the next slide, we can really see how President Biden's approval rating has been operating and how it will or could influence the outlook of voter turnout and voter elections. So really what we've got in this scenario is a situation where the president's approval/disapproval ratings are such that he's got significantly higher disapproval ratings than he has approval ratings. And you see that cross there right about in July of 2021. 
And it's gone up and down a little bit, but for the most part, we're seeing it tick to the disapproval mode. And that's going to result in turnout for Republicans, we would expect. And very much a challenging time for congressional Democrats, if you will. So we look at these polls all the time. We're seeing this trend. And it also maps very much, as we saw in the prior slide, to historical trends for the resident of the Oval Office as compared to what's happening on Capitol Hill. 
If you go to the next slide-- 
BILL NORTHEY: If we think about this --if I might interject for just a moment, as we think about this-- and I think it'll provide a nice segue into the next slide, which you're just about to hit here-- is this presidential approval rating does have an influence on what we see through the congressional elections. And maybe we can talk a little bit about current composition and where we're headed. So I would love to get some of your thoughts there. 
KEVIN MACMILLAN: Absolutely. So if we think about the current composition of the House and Senate, it is incredibly close, incredibly narrow control by the Democratic Party currently in both of those chambers. So just looking at the House of Representatives, the Republicans really only need to pick up less than 10, I think six seats, and they will then control that chamber. And in the Senate, as you can see from the slide, it's 50/50, as we know. 50/50 Senate with the president in the White House results in Democratic control of that chamber. So one seat in the Republican column would result in Republicans controlling that chamber. 
If we go back and we think about exactly what we're talking about with regard to the ability for control of these chambers, the Republicans have-- not only do they have a history of their backs, they also have, frankly, the districts have been reshaped through congressional redistricting, and the advantage sits with congressional Republicans in the House. And the Senate is a different animal, as you know. And as you can imagine, a lot of Senate races are really decided based on personality and the individual person running for the seats. 
And so with the Senate makeup, it's a little bit more tenuous as to how the control of the chamber will likely go and how we expect it will go. But certainly it's very narrow, very narrow majorities on both sides, and thus a very, very highly contested midterm election here that we expect in the next 13 days. 
BILL NORTHEY: So Kevin, as we think about and move on to our next slide here, there's really three potential outcomes that can have a significant influence on the legislative path and policy path forward that comes out of Washington in the post-election period, which is a Republican sweep, in which the Republicans win both the House and the Senate, a Democratic sweep, where it's the opposite outcome, and then there's that middle ground. So maybe you can talk us a little bit through each of those scenarios. 
KEVIN MACMILLAN: Absolutely. So if we think about the first scenario of split government-- and let's just even split it further, so we're talking about control of the House by Republicans and control of the Senate by Democrats-- that's gridlock. That's a situation in which nothing really can move across the two chambers. We won't see significant legislation occurring. 
But if the Senate is controlled by congressional Democrats, the president will be able to continue to press his nominees forward. He will continue to be able to staff out his agencies without much resistance. The Senate will act as a check on the House and will likely not take up many of the pieces of legislation that the Republican-controlled House would push forward. So I think major limits on tax law, major limits on spending policy, and really a lot of gridlock. 
The same proves the case if Democrats control the House and Republicans control the Senate. So you have that split, the one significant difference is that Republicans in the Senate will be able to block Biden appointees if they're so inclined, or at least will dictate the terms in which those appointees would move through that chamber. So again, I don't think we'd see much legislation occurring, but certainly the personnel that are staffing out the regulatory agencies will be impacted one way or the other. 
If we have a different result, where Republicans win both the House and Senate and they control Congress, really it will be proved to be, I think, a significant challenge for the Biden administration. Both chambers will certainly ramp up their oversight of the administration. We've heard from congressional Republicans that they intend to have significant oversight and investigations into the administration and into members of the administration, specifically. So a lot of time will be spent on that. 
There will be some legislation that will pass the Congress, I would think, but would likely be vetoed by the president. I don't, again, see much occurring here that will result in legislation being enacted. But what we'll see is Republicans will be looking towards 2024 to put the president in a situation where he has to either veto or otherwise object to their legislative goals and prerogatives. And so strong headwinds for the White House agenda. Also very limited ability to move legislation. 
And then finally-- and I think this is probably the least likely outcome, because I do think that congressional Republicans will take the House at the least-- the Democrats retaining both chambers. And if that does occur, I think we'll see very much like we saw in the past two years. Legislation does move and can move, and you can see significant changes to tax policy, spending policy. The use of the reconciliation tools in which to move bills will likely be ramped up. And so the president's agenda will have a path towards enactment, and it will be very similar to what we've seen in the past couple years. 
BILL NORTHEY: Yeah, that's very, very helpful, Kevin. And we appreciate your insights there. It does represent a wide range of outcomes, but the clock is ticking and we'll know results here relatively soon. So with that, I'd like to bring in Eric Freedman, our chief investment officer, to maybe provide some historical context concerning the impact leading up to and past, traditionally, what we've seen around the midterm elections. So Eric, appreciate you sharing your insights with us today and look forward to what you're going to share. 
ERIC FREEDMAN: Well, Bill, thanks very much. It's great to be with you and with other teammates here at U.S. Bank. And again, thanks to everybody for dialing in and participating. So I think that a common refrain that people use in markets is that it may be different this time. 
And as you see in these statistics, there tends to be some fairly strong aftermarket performance following a midterm election. And again, that can-- as a function of who's sitting in office and is there a change. And again, as Kevin alluded to, and I think it's a perfect way of framing it, this could be treated as a referendum, if you will, with respect to the current sitting president. 
So I do think that, from a capital market perspective, we always have to ask ourselves, is it going to be different this time? And one of the key things that we focus on, Bill, is just this concept of what are the factors-- and we'll spend a little time later in the presentation talking about those factors, but what are some of the factors that may, in fact, make it different? And so we do think that while, historically, if we do see an outcome where, as Kevin mentioned, the Republicans shift the tale the House, then that would be potentially viewed in more normal circumstances, if you will, as a positive. There's certainly some historical precedent for change, and then a generally good outcome for the stock market, in particular. 
I do want to emphasize one point, and we'll get into this again a little bit later on, is that we do think there are other factors in capital markets right now that are more dominant than what may happen with respect to the midterm elections. And so it doesn't diminish at all their importance. It just puts them really on that same weighing exercise we always have to do, Bill, of saying, if we look at positives versus negatives, where might this information skew. 
And so we do think that even in a more favorable outcome, in terms of a historically market-friendly outcome, this time we think it may be the case, and we think it likely will be the case, where issues like growth, issues like inflation will really be more dominant in terms of capital markets. And so we'll certainly spend some time talking about that. But again, what you have in front of you, what you have as an image here is a look really by president when we've had a scenario with respect to sea changes and what was the result with respect to market performance. So again, those are things that give us a helpful guide, but we do think there are some other factors out there, Bill, that are more important and more dominant this time throughout. 
BILL NORTHEY: Yeah, appreciate that, Eric. And this is part of a publication that we have available for clients to take a look at usbank.com/marketnews, where a number of our publications can be found. So if our audience has additional questions around that, you can always contact your U.S. Bank advisor. So let's go ahead and, Eric, maybe move forward and start to look at some of the other factors that the team is currently looking at in today's environment, how we're currently assessing the current market dynamics. 
ERIC FREEDMAN: Yeah, it sounds great, Bill. And so if you'll advance maybe for two slides, we'll talk about the current capital market environment. So I'm not a fan of wordy slides, so I apologize for all the dictum, if you will, that's on this page. But let me just summarize it very quickly. 
Number one, we still think having a more defensive orientation in your portfolio makes sense. It doesn't mean that we're saying everybody in the pool, everybody out of the pool. We certainly get a lot of questions, I see in the chat there are a couple of questions about, hey, should I come in, all in or all out. We don't think that's usually a great process just because you have to make two decisions, when do I get out and then when do I get back in. And to use the usual quote, if you wait for spring, if you wait for robins to appear, you're going to miss spring. And that's the same corollary in capital markets. 
So we still think having a defensive orientation, owning more of what's called short-duration or short-maturity fixed income or bonds, we think that makes more sense relative to how one may be normally allocated. We also would really underemphasize stocks. And it doesn't mean that we think that there's a significant downside risk from here, but we do think that, relative to risks and rewards, we have other priorities in the portfolio, specifically short-duration bonds, as well as more of an allocation to real assets, things that will do well in a more inflationary environment. 
The second concept we've been talking a lot about is this notion of two repricings. That's a little bit of a visual I'll provide in a bit, but that's a framework that we think will be helpful to you as you're digesting news. And again, staying empowered, being very focused on what's happening around you is always an important strategy. Hopefully this framework will be a helpful compass for you as you think about what you're reading and digesting. 
Third point is that we are right in the middle, literally the halfway point of earnings season. This is when companies around the world, and more acutely in the US, release information about how they're doing, both in terms of how they did this past quarter and what their outlooks are shaping like. And so that's a very, very important consideration for us. Our general thesis, which we'll spend some time on, is that the world is slowing, the economy is slowing down. 
And so understanding how companies are reacting, how consumers are reacting, very important to our thoughts as investors on our clients' behalf. So those are really three things we're focused on, again, being a bit more defensive, using this two repricings framework, which I'll get into, then number three, we're paying very close attention to corporate earnings. There's a lot that have happened across many sectors. And again, understanding how they've done, but more importantly, what the prospects look like, that's where we're very dialed in right now. 
BILL NORTHEY: Yeah, appreciate that, Eric. And as we move forward to the next slide, this is a concept that you've shared with our team and more broadly with the investing public in a number of different circumstances, how 2022 has really been unique. And I'd like you to maybe walk our audience through what we're looking at on this two-by-two grid. 
ERIC FREEDMAN: Yeah, absolutely, Bill. And so one way to look at this is to say that, look, the Southwest of the United States is a great place to live. If you're on this two-by-two matrix, it's not a place where you want to be from an investment standpoint. So you have a combination of the S&P 500 on the x or the horizontal axis, and then the broad bond market on the y-axis or the vertical axis. And so what we've done is just plot how these returns have played out by calendar year since these major indices have been incepted, or really when they kicked off. 
And so what you'll see is that we are in very rarefied air. In fact, this has never happened before that stocks and bonds, in the context of at least-- I shouldn't say never ever, but in the context of since the '70s, this phenomenon has not played out, where both stocks and bonds lose money. And so the principles of diversification, the principles of being more of a rebalanced mentality type of investor, that really hasn't benefited people so far this year. But we also want to be very clear about the statement and saying don't measure things just on a few months or a few quarters. 
We still think that, while this has been a difficult journey in terms of especially in the bond market, that we could be towards the later stages of that actually ending. We'll spend some time talking about that. But again, in the here and now, we would be remiss if we didn't reflect on this fact that stocks and bonds have not done well, and they have not done well at the exact same time. 
Typically, there's a zigzag effect, Bill, that you see that has not been the case this year. And it's been something that, of course, around the globe, people are feeling. Not just a US phenomenon this has happened, but really around the globe, and in some cases, in a much more acute and worse fashion than what we've seen in the US. But again, this two-by-two matrix shows you, just from a historical standpoint, how anomalous the year-to-date period has been. 
BILL NORTHEY: Yeah. Thank you, Eric. And then as we transition into our next slide, for those of you in the audience, dust off your finance 100 level or 200 level class as we get into discounted cash flow. So Mr. Freedman, give us our-- or Professor Freedman, perhaps, give us our lesson here. 
ERIC FREEDMAN: Well, with no office hours, Bill, absolutely will. I appreciate the-- look, this is a concept that's important. And we thought that perhaps some afternoon or late morning math wasn't in the cards for everybody, but just humor us for a minute. So one of the things that we think about as investors is how to really value an asset right now. So for example, if there is a stock that we want to own or a bond that we want to own, really the process that we follow is to discount what we get back as an investor. 
Again, a very baseline premise as an investor is that you invest today to get more tomorrow. And so part of the get more tomorrow is what you have in the form of cash flow. So if I'm a stockholder and the stock that I own pays dividends, then that's a future cash flow. If I'm a bondholder and I receive interest payments on a periodic basis, also a cash flow. And so what we have to do as investors is discount those cash flows back to today. So if I get $100 in a payment two years from now, it's actually not worth $100. It's worth a little bit less right now. 
And so the way the math works is that there are really two parts of this equation. The first part, the numerator, is cash flow, again, the dividend, the interest payment that I get. The denominator is the interest rate. And so very simply, you can see an inverse relationship. As interest rates go up, the present value of an investment goes down. So it just makes intuitive sense, as well. 
If I can borrow for-- I'm sorry, if I can actually lend to the US government, which has taxing authority, which has a military to back up said taxing authority, and the US government actually used to give me a 0.1% for a two-year loan, well, that actually is very low, but right now, actually the US government will pay 4.2% for that same loan. That's a significant, significant difference. And so what you've seen in this environment with rising interest rates-- and again, the reason why interest rates are rising is because of inflation fears-- you're seeing this environment where interest rates have been going up, that has pushed asset values down. 
So again, those two repricings that we've been talking about, the first is how markets digest and react to interest rate movement. As central banks have increased interest rates to fight inflation, that has put pressure on assets. The second repricing is what we're focused on in the-- let's call it the next few quarters, is how will these lagged effects of higher interest rates, of elevated prices, how will it actually weigh in on consumers. How will that weigh in on businesses as they're anticipating what consumers and corporate spending may look like? Those are factors that really drive us into thinking about this second repricing. 
So the first repricing is how markets absorb and digest interest rate movements by central banks. We think that's largely behind us. There will be some back and forth. The European Central Bank will come out with their viewpoints tomorrow. The US Federal Reserve meets next week, on Tuesday and Wednesday. We'll see if they'll be donning their Halloween costumes. But ultimately, there's a lot of news flow, but that first repricing, that synchronization of interest rates, we think we're largely there. 
The second repricing is what happens to cash flows, what happens to dividends, what happens to interest payments. And again, we think there's probably a little risk of some cash flows, particularly from those companies that are really not as-- let's call it are more consumer-sensitive and not as defensive. Those cash flows may be a bit at risk. So those are things that we're very focused on in the here and now, though. 
BILL NORTHEY: Yeah, very useful illustration and explanation here, Eric, around this important concept of the two repricings that we've talked about for a period of time. I'd ask you maybe over the next couple of slides to take a little bit of a deeper dive, then, into what has been the cause of this higher interest rate environment. And if we think about the Federal Reserve as the mechanism by which we transmit interest rates through the system, would love to get some of your perspectives on both that and inflation survey. 
ERIC FREEDMAN: Yeah, absolutely. And so this visual that you have in front of you right now is just-- it shows that 12-month and 24-month, the one-year and two-year US government bond notes. It just shows you just how almost parabolic that increase has been. And so as you've had that discount rate go up, you've had, obviously, value of future cash flows come down. 
And so one of the reasons before that, really why that is, Bill, if you go to the next slide, please, you can see across a few different measures of inflation just how persistent it has been, and also how sharp that increase has been. So there's lots of reasons behind that. Some of it has to do with fiscal stimulus. Some of it has to do with consumers really saving more, and then ultimately spending in response to more relaxed attitudes towards COVID coming out of the pandemic. But bottom line is if you also layer in supply chain issues, which certainly cannot be ignored, there's been this real mismatch of price and quantity, which tends to lead prices up for a fixed amount of goods. 
And so if you look at some of these measures-- and again, these are some more what we call advanced inflationary measures-- even measures that track things, Bill, like health insurance plans, which generally should not be reactive to what's happening in the economy, even those prices have gone up. And again, we've all seen prices at the pump. We've seen prices in grocery stores, rents. Those have been very, very sticky. 
And as those sticky prices further embed themselves within the capital market's psyche, those are areas that are concerning for policymakers. So in a way, Bill, what we've seen is this phenomenon where central banks acknowledge that things are slowing down, but they're saying that, you know what, we're more concerned about these very rampant price increases, and so we're going to err on the side of fighting inflation first and providing a little more-- let's call it backstop to the market second. And so that's a dramatic reversal from where we were in 2020 and in the early part of 2021. 
So to amplify this point a little bit further, if you go to the next slide, please, you can see that we forecast out where we think we're going. Again, we don't want you to think that we solely have two-by-two matrices here at U.S. Bank, but this is a very helpful visual. And so if you plot inflation as well as economic growth, you can see that we again are in that southwest quadrant. A great part of the US, and I was there on Monday and Tuesday, but it is something that we, as investors, have to think about, OK, this environment where we have growth slowing down and inflation coming down-- I mean, most people would welcome some level of inflation coming down, which we think is going to be the case. 
That being said, we think it still remains, Bill, a bit stickier than central banks would like. So we do think the bias from central banks is going to keep interest rates elevated to try to thwart some of those high prices from being overly persistent. So that's something that, of course, we're going to keep focused on, is the trajectory and what our forecasts look like. But these are variables that certainly can change. So bottom line, we are a bit more concerned about the trajectory of growth. We do think inflation slows down, but not enough to keep central banks off that more tightening trend that they've been on for several months now. 
BILL NORTHEY: That's very, very helpful insight and context, Eric, as we're thinking about the environment. I wanted to stop in here with one of the questions that we hear often when we talk to people around the country. And I'll bring Kevin back in here to have you address it first. And then I'll ask Eric to do the same. But with rising interest rates and the cost of servicing here government debt going up, is the US government more likely to cut spending or raise taxes? And what are some of the implications? 
KEVIN MACMILLAN: Sure. Thanks, Bill. It's a great question. And I think it's going to be largely determinant on how these elections do turn out. If we are in a scenario, which is what we do expect, that Republicans will take control of the House, then I wouldn't anticipate that you would see an increase in taxes. I don't think you'll find very many congressional Republicans with an appetite for moving a bill that could foster the support that it needs to travel across both chambers and be signed into law by the president. So I think a reduction in spending will be what congressional Republicans really do press for. 
And so then how does that work? If you've got a split government, it will be very challenging to get any of that achieved. But certainly on the House side, you'll see efforts to trim various agencies. You've already heard them talking about demanding spending cuts for debt ceiling increases and things like that. They're already making those noises on the congressional side of the House. 
If Democrats do retain control of both chambers, I think that we'll see tax increases. We'll see at least a tax package of some kind to address the high cost of government spending. So that's the outlook. And I think if we are really putting our money where our mouth is, I think we're going to be in more of a gridlock situation, where it's going to be challenging to get either of these achieved. 
BILL NORTHEY: Yeah, and maybe that leads to option number C, which is running higher deficits as a function of those higher interest rates, as you laid out the case for gridlock there. So Eric, as a matter of economic growth going forward, maybe I'll have you extend some of your commentary and analysis here. So would appreciate some of your thoughts. 
ERIC FREEDMAN: Yeah, absolutely, Bill. And so maybe just to go forward one slide, if you look at the comments that-- yeah, I'm sorry, one more-- with the graph. Thank you. So if you look at what Kevin just shared that there has been this very significant fiscal response that we don't think is going to return anytime soon. And that's not something that I think is necessarily widely expected to return. 
But still, if we get into the environment on the next slide, which is where you show a very, I think, global comparing of statistics that we look at as investors, that if you're in this environment where global growth is slowing-- and again, it doesn't mean that it's ceasing, but it is certainly slowing down-- typically what governments do is they provide some sort of an offset. They make up for lost demand through fiscal spending. We just don't think that's going to be the case. 
And also, you're going to have this environment where monetary policy, what happens with interest rates, the risk is that interest rates go up and they go higher. So again, that's another reason, Bill, for our slightly more cautious orientation on portfolios, because we do think that this is not just a US phenomenon, but is, in fact, a global one, given some of the statistics you can see on the chart on this page right now. 
BILL NORTHEY: Yeah. And I think the natural extension here, Eric, then is what does this mean from the standpoint of portfolio considerations. What do we do with this information? We're not two-handed economists, the proverbial two-handed economists. we get to do something about it. And we'd love to hear your thoughts there. 
ERIC FREEDMAN: Yeah, I think that's one of the great parts of our team, Bill, is that we have to make decisions. And so our decisions have been to adopt a couple of things. Number one, in portfolios, as mentioned earlier, a bit more of a defensive orientation. 
So we still like domestic stocks over international stocks over the long term. In the near term, we'd actually pull back on both. We think that both the challenges in Europe as well as what we just talked about, that second repricing leg, that still is going to play out, we believe, over the next couple of quarters. So we'd be a little more defensive and in portfolios. 
Within bonds, we still like bonds. We think there are great opportunities for wealth clients and municipal bonds. We also think that shorter duration makes some sense. At some point in time, owning bonds that mature out into the future, that can make some sense. We don't think that we're in that camp right now. 
Last thing is with respect to real assets or things that perform wealth in inflationary time periods, we still would emphasize those considerations, most specifically, an area called infrastructure, which has both a utility component and has a small energy component. That also is tied to ports and re-openings. Those are areas that we think are opportunities. 
So again, we would not be, again, all in, all out. But we would be more defensive from a portfolio orientation right now. 
BILL NORTHEY: Yeah. I appreciate that, Eric. And thank you for giving us a better understanding of the current capital market dynamics. As we're thinking through some of those current market risks and thinking about proactive planning strategies, I'd like to bring in my colleague Kate Phelan here to talk us through some of the strategies that are worth considering in today's environment. Kate, Thanks for being here. And thanks for your patience as we've brought you in on the second half of the call. 
KATE PHELAN: Thanks, Bill. Thanks for the time to be here and follow in good footsteps with Eric and Kevin. So I think that what we'll start with is based on everything that you've heard today, what should you be thinking about a little bit closer to home from a financial planning perspective? And you can see here on the slide, these are six tips-- not necessarily intended to be inclusive of everything that you should do as you think about the upcoming tax season, but a good place to start. 
So the first one is check your paycheck withholdings. This seems like a pretty basic one. But it can actually be pretty impactful on how your taxes play out next year. And the reason for that is if you're claiming too few allowances right now, you may result in getting a bigger refund than you intended. Whereas if you're claiming too many, that may result in a lot more tax due than you intended. 
So while this is a relatively simple thing to do, like I mentioned, it's impactful. If you don't know how to do it, the IRS provides on their website a withholding estimator where you can go in and play around with what are those numbers, what might you consider changing so that you have a better command of what's going to happen next season with your taxes? 
The next thins-- and you've probably heard this a lot-- is maximize your contributions to your retirement accounts. The money that you contribute to your traditional retirement accounts is-- it's pretax. So it's a really great way for you to invest in your future. 
These accounts are going to grow in the future for you. And in the current time, they're going to reduce the amount of taxable income that you have. If you're not in a position to maximize your retirement accounts-- right now, you're allowed to contribute $19,500-- if that's a number that's not attainable for you, I would recommend that you at least look at how much your employer is willing to match. If you're not at least contributing enough to get that match from your employer, you're potentially leaving money on the table and negatively impacting yourself from both the tax perspective and a long-term investment perspective. 
So that's really an important one to look at every year is how much you're contributing to your traditional IRA accounts. Speaking of retirement accounts, for those of you on the line who are 72 years or older, don't forget to take your RMDs. This is your required minimum distribution from your retirement accounts. And it's an amount that is based on how old you are, the balance in your account, your life expectancy. And it's an amount, as you guessed based on the name, that the IRS requires that you take out each year. 
The amount that you take out in your RMD is taxable income. So there may be that instinct to say, well, why bother? I don't want to do that. The reason is there's a 50% excise tax if you fail to timely take your RMDs. So this is a really critical one from a tax perspective to be mindful of taking that RMD before the end of the year. 
For those of you who don't need the tax flow or would rather lower your income base, because again, as I mentioned, that's taxable income, you may want to consider doing what's called a qualified charitable contribution from your account. We don't have time to get into the specifics of that here. But it's a really nice technique for those of you who are in that RMD age. 
The next one is harvest your investment losses to offset your gains. This is a technique where you sell taxable assets, such as stocks and bonds at a loss. This is going to reduce your taxable income. And you can offset those losses with your gains in the account thereby reducing the amount of capital gains that you have in a year. In a year where your losses have, perhaps, outpaced your gains, you can use up to $3,000 of those losses against ordinary income. And you can carry the losses forward. 
Loss harvesting is something that you can do at any time during the year. So it's something I would recommend talking with your investment professional about if you don't feel like you're up to keeping an eye on that. But that can be a really good technique particularly in a time like this where there's a lot of volatility. 
BILL NORTHEY: And as Eric pointed out, this has been a year-- Kate, this has been a year, as Eric pointed out, where there may be an opportunity to take advantage of those tax loss harvesting opportunities. So that's a great point. Please continue. 
KATE PHELAN: Yeah. This is good advice any year, but this year in particular. So, yeah, I would agree with that. The next one is think about bunching your itemized deductions. Certain expenses can be itemized on your taxes. Think about things like medical and dental expenses, contributions to charitable organizations, certain losses that you take from theft and disability-- or excuse me-- theft and disaster, mortgage interest. 
But all of these deductions have a limitation or a threshold. The expenses have to be in excess of a certain percent of your adjusted gross income or your AGI. So let's take, for example, your medical expenses. In order to itemize those expenses as a deduction, you need to spend at least 7.5% of your AGI in a year. Let's say that in a typical year, your medical expenses are more like 5% of your AGI. 
In that case, if there were certain of those expenses that you could defer until the next year, you could spend more in the next year-- so less in year one but more in year two. And in year two, potentially have the expenses be in excess of that threshold so that you could, in fact, itemize and therefore deduct those expenses. 
This is something that I see really commonly with charitable contributions. For those folks who know that they're going to make a contribution to the same charity every year or several years in a row, they'll choose to make two years worth of contributions in one year so that in that year, they can deduct the charitable contributions. 
So this is one that you can be strategic about if you think about-- again, with medical expenses a little bit more difficult. You can always just choose to defer them, but still something that's worth considering. 
And then the last one is spend any leftover funds that you have in your flexible spending account. An FSA is essentially a prepaid bank account that you use for out-of-pocket medical expenses. And it's something that you've funded with pretax dollars. So having funded it has reduced your income. So it's a great tool to use. 
But if you don't spend the money in the account before December 31, that money becomes taxable. And you potentially run the risk of losing those assets if your employer doesn't have a mechanism where you can roll it over. Certain employers will give you until March to spend the money. But you risk losing those assets if you don't spend them timely. 
So make sure that you're thinking about end-of-year medical expenses, prescriptions, around-the-house medical things that you can be buying that are going to be qualified for those FSA expenditures, again, before the end of the year. So that about wraps it up for me, Bill. 
BILL NORTHEY: Kate, great. Thank you. Those are wonderful insights, as you always bring to our conversations here. And as you mentioned, one of the things that we did believe is so important here at U.S. Bank Wealth Management is to have a financial plan. 
And whether you're in the process of building your wealth or growing it and protecting it through time or even finding ways to pass it along to those people that matter or those causes that matter to you as you start to go into the distribution of your wealth, it's important to be able to evaluate-- properly evaluate the many factors that can impact you as you're on your journey to your goals. And to do that, it's really important why we believe that an integrated wealth planning approach that has a living, breathing financial plan that you can revisit through time is so incredibly important. 
If we go to the next slide, one of the ways in which we do this to help you to support that financial planning process is a tool that really helps to give some transparency and confidence around your financial plan-- something that allows you to identify it, update those financial goals-- but importantly, see real-time progress against your goals and your financial picture and to be able to evaluate that what-if scenario analysis that might be important as you think about a major purchase or a period of economic turmoil or other circumstances that are important to you that you need to adapt to in the context of your financial journey. 
So as we begin to close out our time together, I do want to thank again having Kevin, Eric, and Kate here for sharing their great insights. They're wonderful guests. They're repeat guests. And I would endeavor to say that we'll have them back on again in a future iteration of this webinar series. But as we end our time today, I wanted to share with you some resources that are available to you through U.S. Bank Wealth Management. 
First, if you're interested in a recap of today's conversation, we will have a replay that will be sent out soon as a recap of this particular webinar. In the meantime, you can also use the Resources tab on the bottom of your screen. And you can get a link to the U.S. Bank Wealth Management latest market news and analysis as well as links to other articles and insights that may be valuable to your particular financial situation. 
I'd also want to point you to USBank.com/marketnews. We very much endeavor to have our most current thoughts up-to-date and available for both periodic, weekly, quarterly, monthly as well as the episodic events that inevitably arise in the current economic and capital market environment. So please make sure that you bookmark USBank.com/marketnews. 
And lastly, if you're not a wealth management client, but you are interested in knowing how to apply some of the insights to your own personal financial situation, or just want a second opinion on your financial plan as it exists today, we would love the opportunity to connect you with one of our wealth management teams for a free consultation. 
You can see many different ways to reach our team. There's a phone number on the slide in front of you-- 844-233-5836. You can also go to USBank.com/advisor to find an advisor or banker that is located near you. 
And then lastly, in the webinar, you can fill out the Contact Me form that's down in the bottom. And we would proactively have one of our team members reach out to you. So as we close out our time here two together, I just want to say thank you again to all of the presenters for sharing their wonderful insights. And most importantly, thank you to our audience for spending 45 minutes with us to share some of the thoughts that we have and how those might be applicable to your personal financial situation. 
So until next time, we look forward to seeing you on another U.S. Bank Wealth Management webinar series. Thank you for your time today and be well.