By Geoffrey Smith
A report by Bloomberg indicated that President Joe Biden is planning to raise the marginal rate of capital gains tax to around 40% from a base rate of 20% currently, aiming to raise revenue for a swatch of social spending projects.
The rise would reverse a major element of President Donald Trump’s tax cuts in 2017 and creates an obvious incentive for stock investors to realize gains by selling before the higher rate is applied. Fox Business reported on Friday that the final higher rate may end up in the high 30%s rather than at 43%, as mooted by Bloomberg, which first reported the story on Thursday.
By 9:40 AM ET (1440 GMT), the Dow Jones Industrial Average was down 58 points, or 0.2%, at 33,758 points. The S&P 500, however, was up 0.2% and the Nasdaq Composite was up 0.6%. All three indices had fallen by almost 1% on Thursday.
Earlier, the consultancy IHS Markit had released its purchasing managers’ index for the U.S. in April, which showed the pact of economic activity picking up more than expected. Markit’s surveys are more closely followed in Europe, where they indicated a similar trend overnight, but tend to be overshadowed by the Institute of Supply Management’s surveys in the U.S.
The ISM PMIs hit multiyear highs last month, breaching the 60 level. Many analysts have pointed out that in the past, when the ISM is above 60, fears that the Federal Reserve will tighten monetary policy in response have usually led to poor performance by stocks. However, Fed officials have repeatedly stated in recent weeks that such talk would be premature, and that the current recovery is not to be compared with a usual cyclical upswing.
Even so, it remains the case that a generally strong round of corporate earnings this quarter, helped by low comparables and the near-certainty of an improving business outlook, haven’t given stocks much in the way of fresh upside momentum this week. American Express (NYSE:AXP), Kimberly-Clark (NYSE:KMB) and Intel (NASDAQ:INTC) shares all fell in early trade as analysts found something to dislike in all of their updates.
Coinbase (NASDAQ:COIN) stock also fell modestly, in a faint echo of a much sharper drop on the cryptocurrencies that are traded on its exchange.
Among the gainers on Friday were Mattel (NASDAQ:MAT), which reported solid demand for toys as a results of the extended lockdowns throughout the winter across much of the world. Mattel stock rose 5.2% to its highest in over four years.
Snap (NYSE:SNAP) stock also gained 6.1% after Morgan Stanley (NYSE:MS) and Jefferies (NYSE:JEF) both repeated their buy recommendations on the stock in the wake of a strong quarterly report.