-Darren Leavitt, CFA
US equity markets finished mixed on the week as Q1 earnings continued to surprise to the upside. Markets pulled back sharply on Thursday on reports that the Biden administration will propose increasing the capital gains tax, and economic data continued to come in better than expected.
For the week, the S&P 500 lost 0.1%, the Dow shed 0.5%, the NASDAQ gave back 0.3%, and the Russell 2000 managed a gain of 0.4%. US Treasury markets traded in a tight range throughout the week. The 2-year note yield increased one basis point to 0.15%, while the 10-year yield closed unchanged at 1.57%. Gold prices fell $2.10 to close at $1778.10 an oz. Oil prices traded off, fractionally losing $1.01 to close at $62.15 a barrel.
Q1 earnings continue to come in better than expected. 25% of the companies within the S&P 500 have reported earnings. According to FactSet, 84% of the reported companies have had better than expected earnings, and 77% have beaten expectations on revenues. In the coming week, another 181 S&P 500 companies are set to report, and 10 of 30 Dow components will report.
On Thursday, the New York Times and Bloomberg ran reports that the Biden Administration will increase the capital gains tax rate to 39.6%, up from 20% on those earning more than one million dollars. The proposed increase comes on top of the current 3.8% tax on investment income to help fund the Affordable Cares Act. In addition to the increase, these individuals would be subject to state and local taxes as well. Interestingly the market did not respond to the NY Times article early in the day but did sell-off on the Bloomberg story that came across the tape with a couple of hours left in the trading session. Some pundits suggested the sell-off was just an excuse to sell a hot market- this may have some weight given the buy the dip investors that moved markets materially higher on Friday.
Initial Jobless Claims fell to the lowest level since the pandemic started. Data showed that 547k had filled out claims versus the consensus estimate of 600k. Continuing Claims also trended lower, coming in at 3.674 million from last week’s reading of 3.708 million. New Home sales soared, showing an increase of 20.7% on a month over month basis and coming in at a 1.021 million annualized rate. Preliminary data on manufacturing and services also topped estimates.
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