Daily Market Notes: 4-23-2021

After two sharp down days to start the week and one strong higher day the next session, the market seemed to be settling into a more steady, mixed day yesterday when at 1pm it got rocked to the downside once again on a report that President Biden will propose a hefty tax increase on the gains wealthy individuals reap from investments. Investors who earn $1 million or more would have to pay a 39.6% tax rate on any capital gains, nearly double the current rate for Americans in that income bracket. A separate surtax on investment income could boost the overall federal tax rate for wealthy investors as high as 43.3%, the report said, citing unnamed people familiar with the proposal.

The Dow had been slightly lower all morning and was at its best level of the session with an 11 point decline at 1pm when on this news it collapsed to as much as a 420 point downside shellacking at its 2pm lows, from which level it was able to stagger to a final close of 324 points lower at 33, 816. It was hurt by large declines in AMGN, CAT, GS, HD, JPM and MSFT but in a sense one cannot really have so much sympathy for any of these issues considering the substantial advances that all of them have made this year.

The S&P actually had the nerve to be 6 points higher at 1pm before it really got clocked to the downside with a large decline of 50 points at its 2pm low until it also steadied a bit and ended with a final loss of 38 down to 4135, hurt by declines in large technology and others all over the place. Unless there is a miracle upside very large gain today, it is on track for its first weekly loss in five weeks.

The Nasdaq did the worst of all in the sense that it was ahead by 65 points at 1pm before it also got upended with a loss of 179 at the 2pm lows before it also stabilized and ended 131 points down to 13,818. The Russell 2000 Index of small stocks held up better than the others as it finished off by 7 to 2232.

And naturally the VIX loved all of this carnage as it rose to 18.39 and last Friday’s low of 16.25 should now be the downside reference point as it was achieved on the Dow and S&P’s all-time high close at that time.

Stocks have rallied in recent weeks amid a string of encouraging reports on hiring, retail sales and other economic data. COVID-19 vaccinations and massive support from the U.S. government and Federal Reserve are fueling expectations for solid corporate profit growth as more businesses re-open after being forced to close or operate on a limited basis due to the pandemic.

The last round of stimulus from the government helped lift retail sales, and investors now have to weigh other proposals in Washington, including possible changes to tax laws and a potential $2.3 trillion infrastructure package that Biden has called for spending over eight years.

Washington aside, investors are focusing on earnings as the bulk of companies spend the next few weeks reporting their financial results. Investors are hoping to get a better sense of just how much companies in various sectors are benefiting from the economic recovery. They are also listening for clues on prospects for the recovery to continue as vaccine distribution rolls on and people try to return to some semblance of normal.

T gained 4% after reporting results that beat expectations, helped by higher wireless phone charges as well as the success of its streaming service HBOMax. The biggest gainer was EFX with a 15% advance after also reporting strong results. On the downside were UNP, LVS and FCX after weaker results.

The U.S. is showing solid signs of recovery, while Europe and other parts of the world lag behind. That will hopefully change as soon as more vaccines are distributed internationally.

Beleaguered CS dropped by almost 4% after the Swiss bank announced it would issue more stock to help it recover from the losses it suffered because of the implosion of a hedge fund earlier this year as they had been a primary backer of Archegos Capital Management, which collapsed last month after several of its bets went sour.

Investors got a bit of good news on the economy when weekly jobless claims fell again last week down to 547,000, which was the lowest point since the pandemic struck and an encouraging sign that layoffs are slowing.

The 10-year Note yield slipped to 1.55% from 1.56% late Wednesday. Crude oil was higher at  $61.40 a barrel and gold eased back to $1,781 after making nice gains this week.

The market is now in the busiest two weeks of the earnings reporting season as this week alone there were 81 S&P companies reporting which included 0 Dow components. The lineup is as follows: yesterday –  T, LUV, AAL, BIIB, BX, ALK, SAVE, TDC higher while UNP, LVS, CMG, WHR, FCX and Dow component DOW were lower; today – Dow components AXP, HON and  INTC are lower while SNAP, SAM, MAT, WWE are higher.

Economic reports include: yesterday – weekly jobless claims fell to a new post-pandemic low of 547,000; March existing home sales fell by 3.7% but year over year are higher by 12.3%, March L.E.I gained by 1.3%; today – March new home sales rose by a strong 20.7%.

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.