Day Traders Diary

4/22/21

The major averages took a turn for the worst and closed near the lows after reports that President Joe Biden is slated to propose much higher capital gains taxes for the rich. The Dow Jones Industrial Average declined 321 points or 0.94% after dropping 400 points. The S&P 500 erased earlier gains and fell 3 8points or 0.92% while the Nasdaq Composite slid 131 points or 0.94%.

Bloomberg News reported Thursday afternoon that Biden is planning a capital gains tax hike to as high as 43.4% for wealthy Americans. The proposal would hike the capital gains rate to 39.6% for those earning $1 million or more, up from 20% currently, according to Bloomberg News, citing people familiar with the matter. Reuters and the New York Times later matched the headlines.

Growth stocks, which could come under selling pressure on higher capital gains taxes, led the intraday decline on Thursday with shares of Tesla and Amazon falling. The iShares S&P 500 Growth ETF fell 0.5%, more than its value counterpart.

Before the news hit, major averages were trading slightly higher as investors sifted through corporate earnings and economic data.

Shares of Southwest Airlines rolled over and traded in the red despite the carrier saying leisure travel bookings continue to rise and that it expects to break even "or better" by June. Southwest also posted a narrower-than-expected loss for the first quarter.

Dow Inc. fell more than 5% even after the chemicals company topped earnings and revenue estimates for the first quarter. The stock is still up more than 10% for 2021.

So far, companies have largely topped Wall Street expectations this earnings season, but strong first-quarter results are not lifting the market higher after a run to records pushed valuations near multiyear highs.

Nonetheless, the firm raised its year-end S&P 500 target to 4,400, which would translate into a 6% gain from here. Barclays cautioned that upside beyond its target is unlikely.

Investors also digested a better-than-expected reading on weekly jobless claims. The Labor Department said Thursday that first-time claims for unemployment insurance totaled 547,000, which was below the Dow Jones estimate for 603,000.

Also on Thursday, the Republican party set forth their counter offer to Biden's $2 trillion infrastructure plan. The senators proposed a $568 billion framework that includes funding for bridges, airports, roads and water storage. It does not include tax increases.

Still, the fears on the capital gains tax increase could be overblown as Democrats hold only narrow majorities in both the Senate and House, which could make it hard to approve any aggressive proposal.

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