Dow jumps 227 points as strong economic data outweighs Biden tax-hike worry

trader Gregory Rowe
NYSE trader Gregory Rowe works on the floor of the New York Stock Exchange at the end of the trading day.

US stocks closed higher on the last trading day of the week as strong economic data outweighed investors’ fears of the capital gains tax hike proposed by President Joe Biden that would nearly double the tax rate for wealthy Americans.

All three major stock indexes rose Friday propelled by the two popular gauges of business activity that swung even higher in preliminary April readings, according to analytics firm IHS Markit.

The services activity index leaped to 63.1 from 60.4 – the fastest expansion since data collection began in 2009. The firm’s manufacturing index rose to 60.6 from 59.1, which is also a record. Markit’s composite index soared to an all-time high of 62.2 from 59.7. Readings above 50 indicate sector growth, while those below 50 signal contraction.

Ryan Detrick, chief market strategist at LPL Financial, said he was surprised by the market’s reaction to Biden’s proposal. He said investors should have expected it when Biden won.

“Calmer heads are prevailing today with the broad rally at least,” he said in a note. “On the surface, you’d think higher taxes wouldn’t be a good thing, but that’s actually not reality. In fact, the past two times we had an increase in the capital gains tax stocks did really well for the next six months in 1987 and 2013.”

Friday’s gains are a sharp rebound from Thursday’s drop when the markets were spooked after the capital gains tax hike was announced.

“The knee-jerk reaction to yesterday’s news that the Biden administration was interested in almost doubling the capital gains rate was a small selloff in the market,” Chris Zaccarelli, CIO at Independent Advisor Alliance, said in a note. “If the tax increase was actually implemented – as compared to just proposed – the selloff would have been greater.”

Zaccarelli added that the monetary and fiscal stimulus in the system should outweigh concerns over tax policy. But he also acknowledged that the market is relatively expensive by most metrics at this point, which leaves it susceptible to pullbacks, especially when unexpected news arrives.

However, analysts at Goldman Sachs said that congress is likely to settle on a much more modest increase in capital gains tax than Biden would like with the eventual figure likely to land at around 28%.

In bond markets, the 10-year Treasury note rose 1.561% from 1.554% the day prior.

“Since the end of March, we’ve seen a retrenchment of that move as the stock and bond markets have unwound some of those moves,” Zaccarelli said.

Here’s where US indexes stood at the 4:00 p.m. ET open on Friday:

Inovio Pharmaceuticals shares slipped 26% after the US government said it will discontinue funding for a late-phase trial of the company’s COVID-19 vaccine candidate.

In cryptocurrencies, bitcoin slid below $50,000 with $260 billion wiped off the crypto market as Biden’s tax proposals crushed risk appetite. Bitcoin’s weakening momentum has helped contribute to a swift 24% decline from its record high of nearly $65,000 over the past week.

“It is clear that bitcoin is more sensitive to capital gains tax threats than most asset classes,” Jeffrey Halley, a senior market analyst at OANDA, said.

“Black Swan” author Nassim Taleb also doubled down on his view that bitcoin is a Ponzi scheme and a failed currency in a CNBC interview on Friday.

“There’s no connection between inflation and bitcoin,” Taleb told CNBC, adding that everyone knows bitcoin is “a Ponzi.”

Oil prices were steady Friday as Covid-19 concerns, especially in India, rose to new highs. West Texas Intermediate crude rose 1.22% to $62.18 per barrel. Brent crude, oil’s international benchmark, was also up by 1.13% to $66.14 per barrel.

Gold slipped by 0.97% to $1,776.51 per ounce on strong economic data.

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US stocks trade mixed as investors mull proposed capital gains take hike

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Markets are increasingly concerned that inflation could whack stocks

US stocks were mixed on Friday after falling the day prior on fears of the capital gains tax hike proposed by president Joe Biden that would nearly double the capital gains ta for wealthy Americans.

Investors are now analyzing the implications of the proposed higher taxes and what will this mean for the financial system. David Bahnsen, chief investment officer, The Bahnsen Group, a wealth management firm, said Biden’s plan will have a negative impact on the stock market, though it is as yet unclear how big an impact it will have.

“If the stock market really started to believe that the capital gains tax would double in 2022, it’s entirely possible that there would be an acceleration of selling towards the end of this year and into early 2022,” he told Insider.

Bahnsen added that raising capital gains taxes is a disincentive for investors to sell their stocks at the appropriate time.

“Not selling an asset that should be sold due to fear of taxes is distortive to markets,” he added.

But congress is likely to settle on a much more modest increase in capital gains tax than Biden would like with the eventual figure likely to land at around 28%, analysts at Goldman Sachs said in a note Friday.

Here’s where US indexes stood at the 9:30 a.m. ET open on Friday:

Skillz jumped as much as 8% on Friday after Cathie Wood’s ARK Innovation ETF added another 1,222,207 shares of the mobile gaming platform to its holdings the day before.

In cryptocurrencies, bitcoin slid below $50,000 with $260 billion wiped off the crypto market as Biden’s tax proposals crushed risk appetite. Others digital assets tumbled as well. Ether fell 7% to around $2,220, dogecoin fell 17% to $0.17, and XRP dropped 8%.

“It is clear that bitcoin is more sensitive to capital gains tax threats than most asset classes,” Jeffrey Halley, a senior market analyst at OANDA, said.

Oil prices held steady Friday as Covid-19 concerns, especially in India, rose to new highs. West Texas Intermediate crude slipped 0.13% to $61.35 per barrel. Brent crude, oil’s international benchmark, was also lower 0.26% to $65.25 per barrel.

Gold climbed slightly by 0.5% to $1,797.52 per ounce thanks to lower US Treasury yields as well as a weaker dollar. The precious metal is on track for its third weekly gain.

 
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US stocks tumble from record highs as tech shares drag indexes lower

Stock Market Traders
Traders work during the opening bell at the New York Stock Exchange (NYSE) on February 28, 2020 at Wall Street in New York City.

US shares slipped on Monday, falling from record highs last week as technology shares dragged indexes lower. Investors remain cautious over the slew of corporate earnings ahead as well as the ongoing vaccine rollout in the US.

Leading the downturn was Tesla, with shares falling as much as 6.5% following the fatal car crash in Texas Saturday, which left two people dead. The electric car maker was a big laggard on the S&P 500 and Nasdaq Composite Index.

The consumer and real estate sectors also weighed on the benchmark index trading as analysts and investors anticipate earnings from nearly 80 companies this week.

“Wall Street could be in for a few choppy trading weeks as more of the same strong earnings beats becomes the theme,” Edward Moya, senior market analyst at OANDA, said in a note. “The bar was set too low this earnings season, but then again no one really thought it was possible that the US would reach herd immunity by June.”

Moya said the financial markets will likely look to how the bond market is positioned, especially with no major economic data on the horizon. Given this, he expects the 10-year Treasury yield to rise towards the 1.70% level if economic recovery optimism remains strong, and to drop to the 1.53% level otherwise.

The 10-year Treasury yield climbed 3.2 basis points to 1.605% in the afternoon after rising to 1.617% Monday morning.

Bank of America said Treasury yields will likely climb to a two-year high this year despite recent stabilization.

“We think technical factors combined with revised expectations on US growth are mostly responsible for the recent stabilization in US rates,” said Bank of America in a note Monday. It added that the stabilization “subsequently justifies” a rally in emerging markets and US equities and a selloff in the US dollar.

Still, Ryan Detrick, chief market strategist for LPL Financial, is optimistic the stock market will come out of COVID-19’s shadows despite some concerns about the economy overheating.

“In the United States, vaccinations are increasing, the economy is expanding, unemployment is falling, and stimulus continues to flow through the economy,” he told Insider. “With the consensus crowding into an optimistic corner, many investors are wondering if sentiment may be running too hot.”

Here’s where US indexes stood at the 4:00 p.m. ET close on Monday:

Shares of GameStop rose 6% as the company announced that its CEO George Sherman will step down on July 31 or upon the appointment of a successor. Shares were already up even before the company’s announcement, boosted by the company’s progress in making major changes led by activist investor Ryan Cohen.

Nvidia shares sank as much as 4% after UK regulators said they will probe the company’s proposed $40 billion takeover of British chipmaker Arm over national security concerns.

Over the weekend, bitcoin slipped to 17% to its lowest since February but recovered on Monday, regaining some momentum to climb above the $55,000 level. Last week, the cryptocurrency hit an all-time high of over $64,000 on excitement over Coinbase’s direct listing.

But technical analyst Katie Stockton of Fairlead Strategies said bitcoin’s decline could set it up for further downside if a key technical support level is decisively breached.

“The 50-day (~10-week) MA is being tested, and we believe consecutive closes below it would increase risk of a test of support near $42,000,” Stockton said in a note.

China pivoted in its stance on bitcoin, calling the digital asset an “investment alternative” – a comment that Beijing insiders described as “progressive” – after years of cracking down on cryptocurrencies, CNBC first reported.

Oil prices steadied on Monday tempered by a weaker dollar, despite rising coronavirus infections globally. West Texas Intermediate crude rose 0.46% to $63.42 per barrel. Brent crude, oil’s international benchmark, climbed 0.43%, to $67.06 per barrel, at intraday lows.

Gold climbed as much as 0.39% to $1,770.94 per ounce.

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JPMorgan is offering rich clients a way to ride the market waves created by massive investors

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People walk past a branch of Chase Bank in New York on Jan. 14, 2015.

JPMorgan Chase plans to offer its wealthy clients access to a stock strategy typically limited to institutional managers, offering them a chance to ride the wave created by a massive inflow of investors, Bloomberg first reported.

The bank has issued $15 million of structured notes that will allow clients to analyze trading patterns caused by big investors in the S&P 500 under the assumption that these whales may give rise to a new trend or create momentum, according to Bloomberg.

The notes offered by the bank, which carry maturities of up to five years, track the performance of the bank’s Kronos+ index that launched in December 2020, an SEC filing first viewed by Bloomberg showed. Kronos+ thus far has outperformed the benchmark.

According to the Bloomberg report, the gauge of the market tracked by the Kronos+ index hasn’t seen a loss since 2008, when it dropped 54%.

The newly available strategy is among the several that big-league clients can utilize to make sense of the market, especially during bouts of volatility.

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