S&P 500 gives up gain and declines in sudden move on Biden capital gains tax report

S&P 500 gives up gain and declines in sudden move on Biden capital gains tax report

U.S stocks fell to session lows in a swift fashion on Thursday after a report that President Joe Biden is slated to propose capital gains taxes for the rich.

The S&P 500erased earlier gains and fell 0.5%. The Dow Jones Industrial Average dipped 230 points to its low of the day, while the Nasdaq Composite traded 0.3% lower.

Bloomberg News reported Thursday afternoon that Biden is planning a capital gains tax hike to as high as 43.4%. The proposed increase would nearly double the current rate for wealthy Americans.

Shares of Southwest Airlines rose 1.7% after the carrier said leisure travel bookings continue to rise and that it expects to break even “or better” by June. Southwest also posted a narrower-than-expected loss for the first quarter.

Dow Inc. fell more than 4% even after the chemicals company topped earnings and revenue estimates for the first quarter. The stock is still up more than 10% for 2021.

The market remained lower after a better-than-expected reading on weekly jobless claims. The Labor Department said Thursday that first-time claims for unemployment insurance totaled 547,000, which was below the Dow Jones estimate for 603,000.

So far, companies have largely topped Wall Street expectations this earnings season, but strong first-quarter results are not lifting the market higher after a run to records pushed valuations near multiyear highs.

“The streak of strong positive EPS surprises is likely to continue, but elevated valuations have now become pervasive; sentiment is too optimistic; and a potential change in corporate taxation is an overhang,” Maneesh Deshpande, head of equity derivatives strategy at Barclays, said in a note.

Nonetheless, the firm raised its year-end S&P 500 target to 4,400, which would translate into a 6% gain from here. Barclays cautioned that upside beyond its target is unlikely.

On Thursday, the Republican party set forth their counter offer to Biden’s $2 trillion infrastructure plan. The senators proposed a $568 billion framework that includes funding for bridges, airports, roads and water storage. It does not include tax increases.

American Airlines erased earlier gains and turned negative even after the company said its cash flow turned positive by the end of the quarter, excluding debt payments.

Stocks rose on Wednesday to snap a two-day drop as companies tied to the economy reopening led the way higher. The Dow advanced 316 points, or 0.93%, while the S&P 500 rose 0.93%. The Nasdaq Composite was the relative outperformer of the major indices, rallying 1.19%.

Small caps were a particular point of strength during the session, with the Russell 2000 ending the day 2.35% higher for its best day since March 1.

The Dow and S&P 500 are less than 1% away from reclaiming their record highs, reached last Friday, amid ongoing optimism over the pace of the economic recovery.

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