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Market Snapshot: U.S stocks end sharply higher as investors shake off tax jitters

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U.S. stocks shook off early weakness to roar higher Friday, putting the S&P 500 index close to a new closing record, but still ended lower for the week.

Stocks were supported by data indicating an acceleration in economic activity and even faster growth in new home sales, as investors largely brushed off Thursday’s reports that President Joe Biden would propose a large increase on the capital-gains tax for the wealthiest Americans.

A busy week of corporate earnings reports is also coming to a close with the majority of companies seeing better-than-expected results for the quarter, even if guidance for the rest of the year was mixed.

What did major benchmarks do?
  • The Dow Jones Industrial Average
    DJIA,
    +0.67%

    rose 227.59 points, or 0.7%, to close at 34,043.49, but ended the week down 157.18 points or 0.46%.
  • The S&P 500
    SPX,
    +1.09%

    gained 45.19 points, or 1.1%, to close at 4,180.17, after trading above its April 16 closing high of 4,185.47 during the afternoon, but ended the week down 5.30 points or 0.13% .
  • The Nasdaq Composite
    COMP,
    +1.44%

    jumped 198.40 points, or 1.4%, to 14,016.81, ended the week down 35.53 points or 0.25%.

On Thursday, the Dow tumbled 321.40 points, or 0.9%, for its biggest one-day fall since March 4, while the S&P 500 and Nasdaq Composite also fell 0.9%. For the week, the Dow lost 0.5%, the S&P 500 was down 0.1%, and the Nasdaq was 0.3% lower.

What drove the market?

Stocks rallied, with nearly all major sectors in the S&P 500 advancing, after the indexes turned south Thursday when Bloomberg News and others reported that Biden would propose a hike in the capital-gains tax rate to 39.6% from 20% for individuals making more than $1 million a year. While the reports dented sentiment, analysts noted that the proposal was in line with Biden’s campaign promises and predicted a hike would be scaled back in congressional negotiations.

Need to Know: Get ready for $178 billion of selling ahead of the capital-gains tax hike. These are the stocks most at risk

“The 39.6% figure is very much in line with the campaign pledge and shouldn’t shock, but the fact we’ve seen selling of risk suggests the market is far more sensitive to bad news, and this will happen when froth is prevalent,” said Chris Weston, head of research at Pepperstone, in a note. “Consolidation seems to the order here in the short-term and it feels like we’re at the mercy of a period of choppy price action,” he said.

TaxWatch: Biden has pledged to tax the rich — but precisely how will he do that? Experts consider his options

David Joy, Ameriprise Financial’s chief market strategist, also sees stocks recovering from the market’s surprising “knee-jerk reaction” to reports the White House will propose increasing tax rates. “It was no secret,” Joy said Friday in a phone interview. “President Biden had campaigned on those very details.” 

Joy expects stocks will continue to be buoyed by a stronger economy as the pandemic persists.

In U.S. economic data, the IHS Markit purchasing managers index for the manufacturing sector rose to a record 60.5 in April from 59.1 a month earlier, while the services sector PMI jumped to 63.1 from 60.4. A reading of more than 50 indicates an expansion in activity.

“Supporting the rebound with equities was a record increase in business output,” Edward Moya, senior market analyst for the Americas at OANDA, said in a note Friday afternoon.

New home sales rose to a seasonally-adjusted annual rate of 1.021 million in March, the U.S. Census Bureau reported — the fastest pace since 2006. Month-over-month, sales rose 20.7%. Also, the Census Bureau revised the sales figure for February up to a rate of 846,000, from the originally reported rate of 775,000. 

Which companies were in focus?
What did other markets do?
  • The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    was little changed Friday afternoon at 1.561%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index
    DXY,
    -0.54%
    ,
    a measure of the currency against a basket of six major rivals, fell 0.6% to 90.82.
  • Bitcoin
    BTCUSD,
    -1.26%

    slipped 1.9% Friday afternoon in a move that some observers tied to tax jitters, trading below a key threshold at $50,000 for much of the day.
  • Oil futures settled 1.2% higher at $62.14 a barrel on the New York Mercantile Exchange, but posted a weekly decline amid worries about a surge in COVID-19 cases in India and Japan.
  • Gold futures gave up modest early gains to trade lower, with the June contract
    GCM21,
    -0.32%

    down $4.20, or 0.2%, to settle at $1,777.80 an ounce.
  • In Europe, the Stoxx 600 index
    SXXP,
    -0.13%

    closed 0.1% lower and London’s FTSE 100
    UKX,
    +0.00%

    ended the session unchanged.
  • In Asia, the Shanghai Composite
    SHCOMP,
    +0.26%

    rose 0.3%, Hong Kong’s Hang Seng Index
    HSI,
    +1.12%

    jumped 1.1% and Japan’s Nikkei 225
    NIK,
    -0.57%

    fell 0.6%.

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