Market Snapshot: Dow slides 300 points after report Biden weighing sharp rise in capital gains tax

What’s driving the market?

Equities gave up modest gains in early afternoon trade after Bloomberg News reported that Biden would propose nearly doubling the capital-gains tax rate for Americans earning more than $1 million a year to 39.6% from the current base rate of 20%. Combined with an existing surtax on investment income, Bloomberg said, federal tax rates for the wealthiest investors could be as high as 43.4%. Bloomberg cited people familiar with the proposal.

“Wall Street hit the panic button and headed for the sidelines after reports that President Biden will propose capital gains taxes as high as 43.4% for those making over $1M per year” said Edward Moya,  Senior Market Analyst, The Americas, at OANDA. “This will likely be the initial high ask from the Biden administration on taxes.  Some traders are looking for an excuse to lock-in profits and they might choose to use this tax story as their catalyst. ”     

Equities were buoyed in earlier activity, with quarterly corporate results largely beating Wall Street expectations this earnings season and applications for weekly jobless benefits claims declining.

So far this quarter about 85% of S&P 500 index companies have beaten earnings expectations, according to Refinitiv. First quarter earnings per share growth is now estimated at 33.3%.

In U.S. economic data, weekly jobless benefit claims fell by 39,000 to 547,000 in the week ended April 17, the lowest since before the pandemic struck. Continuing claims fell 34,000 to 3.67 million as of April 10.

“While surges in COVID variant infections remains a near-term risk, the outlook for US growth has been upgraded sharply. As more Americans get vaccinated and feel comfortable traveling, going to restaurants, sporting events and live entertainment, more and more people will be able to return to the workforce, if they choose to,” said Anu Gaggar, senior global investment analyst for Commonwealth Financial Network. “Markets are not particularly enamored, however, as much of the good news has already been priced in. “

U.S. existing-home sales slowed to a 6.01 million seasonally adjusted annual pace in March from 6.22 million in February as inventory remained tight, pushing prices higher. Separately, March leading economic indicators gained 1.3%.

“The trend lower in jobless claims continues to corroborate the strength we’re seeing in the reopening of the US economy,” said Cliff Hodge, Chief Investment Officer for Cornerstone Wealth. “However at these elevated valuation levels, the market may have some agita digesting the cross currents from negative virus headlines.”

“Much of the good news is priced in, and as the rubber meets the road and we have to now execute on the reopening that the market has discounted, there is a lot more that can go wrong,” he added.

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As expected, the European Central Bank left policy unchanged following its Governing Council meeting. ECB President Christine Lagarde said they didn’t discuss phasing out its bond-buying program at the meeting, saying such a move would be “simply premature.”

Which companies are in focus?

• AT&T Inc. T, +3.64% shares rose 3.8% after reporting first-quarter results early Thursday.
• Shares of American Airlines Group Inc.  AAL, -3.07%  jumped 2.3%, after the air carrier reported a wider-than-expected first-quarter loss and revenue that fell shy.
• Shares of Biogen Inc. BIIB, -3.49%  fell 2.8% after the drug maker saw revenue drop 25% for the quarter.
• Shares of Chipotle Mexican Grill Inc. CMG, -2.85% were down 2% after the fast-casual restaurant chain late Wednesday blew past Wall Street expectations for its first quarter, saying new menu items, continued strength of online orders and a tailwind from stimulus checks pushed its sales more than 20% higher.
• Qualtrics International Inc. XM, +21.64% shares jumped 21% after the maker of employee-engagement and survey software reported first-quarter results late Wednesday.
• Shares of Lam Research Corp. LRCX, -4.48%, which makes the instruments that foundries use to fabricate silicon wafers, slipped 3.6% after reporting record quarterly results late Wednesday.
• Whirlpool Corp. WHR, -1.45% shares dipped 1% after the appliances maker reported first-quarter earnings that were above Wall Street expectations and raised its guidance.
• Sleep Number Corp. SNBR, -12.23% late Wednesday reported first-quarter earnings above Wall Street expectation and raised its guidance, but mentioned a supply snag that hit its sales in the quarter. Shares tumbled 11%.
• SmartRent.com Inc., a provider of smart home operating systems, said it would go public via a merger with special-purpose acquisition company (SPAC) Fifth Wall Acquisition Corp. I FWAA, +0.44%,  in a deal valued at $2.2 billion.

How are other assets performing?

• The yield on the 10-year Treasury note BX:TMUBMUSD10Y  was up 0.2 basis point at 1.565% as the ECB kept policy on hold, keeping U.S. bonds attractive to foreign buyers. Yields and bond prices move in opposite directions.
• The ICE U.S. Dollar Index DXY, +0.21%, a measure of the currency against a basket of six major rivals, was up 0.2%.
• Oil futures CL.1, -0.16% CLM21, -0.16%  seesawed as COVID-19 cases continued to rise, with the U.S. benchmark down 0.1% near $61.28 a barrel.
• Gold futures GC00, -0.62% fell 0.7%, after touching a 2-month high Wednesday.
• In Europe, the Stoxx 600 SXXP, +0.68% closed 0.7% higher after the ECB statement. London’s FTSE 100 UKX, +0.62%  rose 0.6%.
• In Asia, Hong Kong’s Hang Seng Index HSI closed 0.5% higher, while the Shanghai Composite SHCOMP slipped 0.2% and Japan’s Nikkei 225 NIK jumped 2.5%.

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