Biden prepares capital gains tax hikes on rich

Week from 19 to 25 April 2021

Wall Street turned lower as Joe Biden was planning a capital gains tax hike for wealthy Americans. His proposal would almost double the capital gains rate to 39.6% for those earning $1 million or more. In a first time, the news triggered a selloff on U.S. stock markets, with major indexes falling during Thursday's trading session. Yet they rebounded on Friday as investors were rushing back into the beaten down sectors. The wave of better-than-expected earnings somewhat offset a spike in Covid-19 cases around the globe that raises new concerns about economic growth.

Netflix Down, Equity Markets Stall

The Dow Jones Industrial Average closed lower (-0.46%) after its record high last week. The S&P 500 (-0.13%) and the Nasdaq Composite (-0.25%) followed suit while small cap stocks finished in positive territory (Russell 2000 up +0.41%). Among the S&P sectors, energy was the worst performer, slipping 1.77% after an unexpected climb in U.S. crude oil inventories (+0.6 million barrels in the week ended April 16 – WTI down 1.57% week-over-week). Consumer discretionary (-1.23%), utilities (-0.95%), communication services (-0.63% with Netflix down -7.5% due to weak subscriber adds) and tech (-0.46%) also led the broader market to downside. Only four sectors did not lose ground: real estate (+2.04%), health care (+1.77%), industrials (+0.43%) and materials (+0.37%).

There was no miracle in Europe. The MSCI EMU lost 0.48% and the FTSE slumped 1.15%.

APAC markets closed mixed. The Nikkei was down 2.23% while the Shanghai Composite rose 1.39% as China’s economy soared (+18.3% in Q1) with consumer spending above expectations.

Credit Markets Pause

It was a calm period for credit markets as the U.S. 10-year yield showed no change at +1.58%. Investment grade corporate bonds were up +0.30% in the U.S. while their European counterparts remained flat (-0.01%). The same held true for emerging debt (-0.01% in local currencies). High yield bonds broke their four-week winning streak (-0.13% in Europe, -0.04% in the U.S.).

Elsewhere gold edged down (-0.11%) and the greenback retreated against the euro, hitting an 8-week low (EUR-USD up +0.58% at 1.2049).

Bitcoin Plunge as Euphoria Around Coinbase Fades

Shares of the recently public cryptocurrency exchange (Coinbase Global Inc.) dropped 14.74% week-over-week (five consecutive days in the red) in the wake of a selloff in bitcoin BTCUSD (-12.5%) below the $50,000 level. Tax increases for the richest Americans indeed weighed on the cryptocurrency space.

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