Tax the Rich - Holdun

Market Summary

Despite mostly positive economic indicators and strong earnings results, the major stock indexes finished marginally negative this week as rumors of a proposed tax hike in the U.S. spooked investors.

Following a 7% run over the prior few weeks, the S&P 500 fell 0.11% this week, while the Nasdaq dropped 0.25%.

The major drawdown of the week came on Thursday as rumors circulated about a proposed increase to the capital gains tax from 20% to 39.6% for those Americans earning more than $1 million.

Following Thursday’s tax-related drawdown, U.S. stocks rallied on Friday, as factory data and new home sales underscored a booming economy, while mega-cap stocks rose in anticipation of strong earnings reports next week.

Equities

0.11%S&P 500

Investors continued to tilt toward stocks poised to benefit from a recovering economy helping to offset some decline in the larger growth names. Netflix sold off after its lower-than-expected subscriber growth resulted in a disappointing earnings report. Value and Small-Cap continued their recent trend of outperformance, both finishing the week in positive territory.

Currency

0.6%USD/EUR

The euro held at an eight-week high against the dollar on Monday as expectations that the U.S. Federal Reserve will maintain its supportive stance at a policy meeting weighed on the greenback.

Bond Yields

1.58%US 10Y TREASURY YIELD

Relatively subdued movements in yields this week as the U.S. 10 Year treasury finishing out the week at 1.58%. Yields rose slightly early in the week as investor focus remained on corporate earnings before dropping back on news that President Biden will propose a tax hike for high earners.

CRYPTO

18.3%BITCOIN

A week to forget for crypto as bitcoin suffered its biggest weekly loss since March 2020. The price of Bitcoin fell below $50,000 on Friday after climbing to $62,000 just a week earlier. In true Bitcoin fashion, much of the damage was done during a span of about 20 minutes. Despite the recent volatility, the Crypto still sits well above it 2021 starting price of $29,000.

Sector Performance

best2.0%Real Estate

Worst1.7%Energy

Market Outlook

Over the coming days, investors will be focused on a Federal Reserve meeting, the rollout of President Biden’s ‘American Families Plan,’ further inflation data, and a stack of earnings reports.

Earnings reports will likely be the main influence on market movements with almost 40% of the S&P 500’s market cap reporting on Tuesday through Thursday, including the tech and related heavyweights of Microsoft, Alphabet, Apple and Facebook.

While a continuation of the upside earnings surprise is expected, positive earnings reports do not guarantee positive price action. For example, Financials stocks outperformed significantly in Q1; and despite strong results and upside surprises so far, the average financials stock has moved -1.1% lower. Despite strong Q4 2020 results for the big tech names, many sold off as the rotation trade took hold and investors trimmed some of their big winners from 2020. With the market rotation over the past few months consolidating relative strength, some leeway now exists that should see positive Q1 earnings result in positive price action for these larger tech names.