- Stocks sink on concern about capital gains tax hike
- U.S. new home sales expected to reverse Feb’s bad-weather plunge
- CDC meets today on J&J vaccine
Stocks sink on concern about capital gains tax hike — The markets knew it was coming. Nevertheless, the U.S. stock market yesterday had indigestion on Bloomberg’s report about the Biden administration’s plan for a capital gains tax hike for the wealthy.
The S&P 500 index, just after 1PM ET yesterday, sold off by a total of -1.3% in about an hour on the tax-hike news, although the index then stabilized and closed the day down -0.92%. The Nasdaq 100 index got hit harder and closed the day down -1.24% due to the fact that a capital gains tax hike would likely hit stocks harder with high valuations and large gains for the year.
Bloomberg reported that the Biden administration will propose raising the capital gains tax to 39.6% from 20% for taxpayers earning more than $1 million per year. The capital gains tax would go above 40% after adding in the Obamacare surtax on investment income and state taxes.
The reported proposal was in line with President Biden’s campaign platform and wasn’t any big surprise. Nevertheless, the markets are worried that wealthy investors might start dumping their stocks later this year to beat the tax hike, assuming that it begins January 1, 2022. However, it is possible that the tax hike would be retroactive to the beginning of 2021, in which case selling stocks wouldn’t save any money on taxes. In any case, a higher tax on stock gains would make stocks somewhat less attractive as an investment and could compress P/E ratios.
Bloomberg reported that President Biden plans to announce his “American Families Plan” at his joint address to Congress next Wednesday (April 28). The plan is the social-spending counterpart to the $2.25 trillion American Jobs Plan that the administration recently announced. That plan is being paid for with corporate tax hikes.
The American Families Plan, by contrast, will be paid for with higher taxes on the wealthy, including an increase in the tax brackets for people making over $400,000, higher estate taxes, and the capital gains tax hike Bloomberg reported on yesterday.
Speaker Pelosi has said that Congress plans to handle two plans with separate legislation. Ms. Pelosi has said that the House plans to pass the American Jobs Plan by July 4 and that she hopes the Senate will pass the bill before the August recess.
The American Families Plan is likely to be more contentious, and passage could be pushed back to autumn or later. However, Democrats cannot afford to wait any longer than the end of this year to pass the bill because next year is campaign season for Congress for the 2022 mid-term elections, when everything in politics will become more difficult.
U.S. new home sales expected to reverse Feb’s bad-weather plunge — The consensus is for today’s Mar new home sales report to show an increase of +14.2% m/m to 885,000, reversing most of February’s -18.2% plunge to 775,000. February’s plunge was attributed to bad weather in many areas of the country that impeded home-buying activity.
Home sales in February were also hurt by (1) high home prices, (2) low availability of homes on the market, and (3) higher mortgage rates.
The 30-year mortgage rate has risen by +32 bp to the current level of 2.97% from January’s record low of 2.65%. However, the mortgage rate in the past few weeks has at least fallen back from the early-April 10-month high of 3.18%.
However, demand generally remains strong for homes around the country as the pandemic trends continue of people looking to escape multi-family housing or move into a home with more space.
CDC meets today on J&J vaccine — The CDC meets today to decide whether the Johnson & Johnson Covid vaccinations can resume after the review of the blood clot data. The J&J vaccine is easier to administer since it only requires one shot and doesn’t require extremely cold freezers, making it an important solution for areas outside big cities.
The data is starting to suggest that in some areas, there are more vaccines available than people who want to receive them. Bloomberg reports that the average daily vaccine rate has dropped to 3.0 million doses per day from the recent peak 3.4 million, and that the reason is reduced demand. Only 75% of shipped vaccines are being administered. The slower vaccination pace is bad news since it suggests that it will take longer to get to herd immunity.
According to the CDC’s Covid Data Tracker, 26.9% of the total U.S. population has now been fully vaccinated, and 40.9% have received at least one dose.
Globally, the pandemic is getting worse in some areas. The 7-day average of new daily infections in India has now reached a world record of 280,833, according to Johns Hopkins. The spike seen in India has been the worst that any country has experienced during the year-long pandemic. Japan is also seeing a surge, and Tokyo and Osaka may need to declare another state of emergency and impose new restrictions.
Weekly new global Covid infections for the week ended April 19 rose +12% w/w to +5.2 million, the most since the pandemic began, mostly from surges in India and Brazil. Globally, Covid infections have risen above 144.589 million, with deaths exceeding 3.075 million.
