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April 22, 2021, 4:20 p.m. EDT

Dow books over 300 point loss after report Biden weighing sharp rise in capital gains tax for wealthy

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By William Watts and Sunny Oh

U.S. stocks ended sharply lower on Thursday, seeing the biggest one day slide since early March, following a news report that said President Joe Biden is weighing a proposal which would nearly double the capital-gains tax for wealthy individuals.

What are major indexes doing?

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.66% fell 321.41 points, or 0.9%, to 33,815.90, the largest one day point and percentage decline since Thursday, March 4, 2021..

  • The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.74% dropped 38.44 points, or 0.9%, to 4,134.98, the largest one day point and percentage decline since Thursday, March 18, 2021.

  • The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.88% fell for three of the last four trading days, and shed 131.81 points, or 0.9%, to end at 13,818.41

On Wednesday, stocks ended higher after back-to-back declines, with the Dow rising 316.01 points, or 0.9%. The S&P 500 gained 0.9%, while the tech-heavy Nasdaq Composite jumped 1.1%. The small-cap Russell 2000 index /zigman2/quotes/210598147/delayed RUT +1.35% jumped 2.4%.

What’s driving the market?

Equities gave up modest gains to end lower after Bloomberg News reported that Biden would propose nearly doubling the capital-gains tax rate for Americans earning more than $1 million a year to 39.6% from the current base rate of 20%. Combined with an existing surtax on investment income, Bloomberg said, federal tax rates for the wealthiest investors could be as high as 43.4%. Bloomberg cited people familiar with the proposal.

White House Press Secretary Jen Psaki said “we’re still finalizing what the pay-fors look like,” after being asked about the capital gains tax plan at a press briefing Thursday.

“Wall Street hit the panic button and headed for the sidelines after reports that President Biden will propose capital gains taxes as high as 43.4% for those making over $1M per year” said Edward Moya, senior market analyst at OANDA, in a note.

“This will likely be the initial high ask from the Biden administration on taxes.  Some traders are looking for an excuse to lock-in profits and they might choose to use this tax story as their catalyst,” said Moya.

Equities were buoyed in earlier activity, with quarterly corporate results largely beating Wall Street expectations this earnings season and applications for weekly jobless benefits claims declining.

So far this quarter about 85% of S&P 500 index companies have beaten earnings expectations, according to Refinitiv. First-quarter earnings per share growth is now estimated at 33.3%.

In U.S. economic data, weekly jobless benefit claims fell by 39,000 to 547,000 in the week ended April 17, the lowest since before the pandemic struck. Continuing claims fell 34,000 to 3.67 million as of April 10.

U.S. existing-home sales slowed to a 6.01 million seasonally adjusted annual pace in March from 6.22 million in February as inventory remained tight, pushing prices higher. Separately, March leading economic indicators gained 1.3%.

“The trend lower in jobless claims continues to corroborate the strength we’re seeing in the reopening of the US economy,” said Cliff Hodge, Chief Investment Officer for Cornerstone Wealth. “However at these elevated valuation levels, the market may have some agita digesting the cross currents from negative virus headlines.”

“Much of the good news is priced in, and as the rubber meets the road and we have to now execute on the reopening that the market has discounted, there is a lot more that can go wrong,” he added.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
34,777.76
+229.23 +0.66%
Volume: 311.63M
May 7, 2021 5:15p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,232.60
+30.98 +0.74%
Volume: 2.05B
May 7, 2021 5:15p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
13,752.24
+119.39 +0.88%
Volume: 3.97M
May 7, 2021 5:16p
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/zigman2/quotes/210598147/delayed
US : US Composite
2,271.63
+30.21 +1.35%
Volume: 0.00
May 7, 2021 7:01p
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