Daily Markets: Biden's Proposed Taxes on Wealthy Weigh on Markets

Today’s Big Picture

Equity markets in Asia-Pacific were mixed today, with the Nikkei 225 falling 0.6%, South Korea’s Kospi and China’s Shanghai Composite added 0.3%, while the Shenzhen Component rose 1.0%. Hong Kong’s Hang Seng rose 0.9%, while Australia’s ASX 200 rose fractionally, but India’s Nifty 50 fell fractionally. By midday trading, European equities were mostly in the red, and U.S. equity future point to positive moves at the open.

You guessed it: Today brings more earnings, but also the first hard look at April's economic data thanks to the Flash PMIs from IHS Markit, the decision on the Johnson & Johnson (JNJ) vaccine, and the second day of the virtual climate summit. We see that translating into a day filled with the digestion of all this news, along with more scrutiny on President Biden’s proposed capital gains tax that roiled markets late yesterday. With more than 800 companies reporting next week and a full slate of economic data coming as we close out the month of April, enjoy some R&R this weekend. And yes, we are almost one-third of the way through the current quarter. Man, oh man, how time flies!

Data Download

International Economy

Today brings a slew of flash PMIs for April from around with world, which were only slightly changed in either direction after the big gains seen in March.

• Australia’s Markit Manufacturing rose to 59.6 from a downwardly revised 56.8 while Services rose to 58.6 from 55.5, putting the Composite at 58.8 from 55.5.
• Jibun Bank Manufacturing increased to 53.3 from 52.7 while Services remained flat at 48.3, leaving Composite at 50.2 from 49.9.
• France’s Markit Manufacturing fell to 59.2 from 59.3, and Services rose to 50.4 from 48.2, putting Composite at 51.7 from 50.
• Germany’s Markit Manufacturing fell slightly to 66.4 from 66.6, Services fell to 50.1 from 51.5, and Composite at 56 from 57.3.
• Eurozone Markit Manufacturing came in at 63.3, up from 62.5, Services 50.3 vs. 49.6 the prior month, leading the Flash Composite 53.7 from 53.2 in March.
• UK Markit/CIPS Manufacturing came in a 60.7 up from March’s from 58.9 while the Flash Services reading for April hit 60.1 vs. 56.3 the prior month, and the April Flash Composite registered 60 vs. 56.4 the prior month.

The UK’s Gfk Consumer Confidence in April rose less than expected to -15 from -16 in March, from which it was expected to improve slightly to -12. UK Retail Sales rose 7.2% YoY in March after falling -3.6% in February. Retail sales ex-fuel rose 7.9% YoY in March after falling -1.0% previously.

Japan’s Inflation rate declined 0.2% YoY in March from -0.4% in February, while Core Inflation slipped 0.1% YoY from-0.4% in February, from which it was expected to rise slightly to -0.1%.

Domestic Economy

Yesterday’s report on Existing Home sales saw a plunge in sales in March thanks to higher mortgage rates and exceedingly low inventories. Inventory is so low that since the end of 2019, the median existing-home sales price is up 19%.

Yesterday’s Kansas City Manufacturing Index, which already hit a record high in March, added an additional 5 points this month to make yet another record high. Expectations came in a little bit weaker but remained around the highest levels in the survey’s history. Half of the individual sub-indices made new record highs. Overall, it was a stellar report.

The Chicago Fed National Activity Index (CFNAI) for March revealed intense acceleration in activity, one of the strongest on record, after February’s weather-related weakness.

Finally, the weekly jobless report on Thursday again came in better than expected, with initial jobless claims coming in at 547,000, which was 50,000 below expectations and a new pandemic low. This was the second consecutive report with initial claims below 600,000. Continuing claims also dropped to a pandemic low of 3.67 million. There are now 17.4 million collecting jobless benefits under various programs, but this data is delayed two weeks behind the continuing claims data.

Later today in the U.S., we will get the April Flash Markit Manufacturing and Services PMIs, New Home Sales, and the weekly Baker Hughes Oil Rig report.

Markets

Stocks took a hard hit yesterday when news hit that President Biden may propose increasing the capital gains rate from 20% to 39.6% for those who earn at least $1 million a year. The S&P 500, Nasdaq, and Dow all closed down 0.9% while the Russell 2000 fell 0.3% and the Nasdaq 100 dropped 1.2%.

According to the Federal Reserve’s Distributional Financial Accounts, nearly 44% of all U.S. corporate equities and mutual fund shares are owned by those in the 99th percentile of income = those earning above $531k. This extreme level of concentration of wealth is why a tax applied to such a narrow group had such a profound impact on the markets.

Stocks to Watch

As we get ready to close out the week, investors will first have to contend with quarterly results and guidance from American Express (AXP), Honeywell (HON), Kimberly-Clark (KMB), and Sensient (SXT), among others.

Yesterday Intel (INTC) reported knock-it-out-of-the-ballpark results with a 4.9% beat on top-line revenue, an EPS beat of nearly 22%, and raised full-year guidance from consensus for adjusted revenue of $72.32 and $4.58 EPS to $72.5 billion. Now for the bad news, the second-quarter profit forecast came in 5.4% below expectations despite revenue guidance 0.9% above, and its data center chip unit also missed on first-quarter expectations. That sent shares down over 3% in extended trading, with those stocks that have been the biggest gainers in recent years getting hit the hardest. Investors will look for corroborating comments when AMD (AMD) reports its quarterly results on April 27.

March quarter revenue and EPS at Snap (SNAP) topped consensus expectations as its Daily Active User count rose 22% YoY to 280 million. The company shared the number of Snapchatters engaging daily with augmented reality Lenses grew more than 40% YoY in Q1. For the current quarter, Snap sees revenue of$820-840 million vs. the $821.4 million consensus.

Daimler AG (DDAIF) reported March quarter unit sales that rose 13% to 728,600 cars and commercial vehicles. The current worldwide supply shortage in certain semiconductor components affected deliveries in the first quarter. Daimler anticipates that this shortage could further impact sales in the second quarter. Although visibility is limited at present, Daimler assumes some recovery in the third and fourth quarters. On its earnings conference call last night, Intel shared its view that it will “take a couple of years for the ecosystem to make the significant investments to address these shortages.”

Silicon Labs (SLAB) entered into a definitive asset purchase agreement to sell its Infrastructure & Automotive (I&A) business to Skyworks Solutions (SWKS) for $2.75 billion in all-cash consideration. Following the divestiture, Silicon Labs will be a pure-play leader of intelligent, wireless connectivity for the IoT.

As it seeks to fine-tune its global branch network, chatter suggests Citigroup (C) could fetch as much as $6 billion from the sale of retail banking assets in 13 markets across the Asia-Pacific region, Europe, and the Middle East.

Latham Group (SWIM) priced its IPO of 20 million shares at $19 per share, the low end of the targeted $19-$21 range.

After today’s market close, there are no companies slated to report their quarterly results. Investors looking to get ready for next week's bonanza should visit Nasdaq’s earnings calendar page to see who's on deck.

On the Horizon

• April 26: Durable Goods Orders, Dallas Fed Manufacturing
• April 27: S&P/Case-Shiller Home Price Index, Conference Board Consumer Confidence, API Crude Oil Stocks
• April 28: Goods Trade Balance, Wholesale Inventories, EIA Energy Stocks, Federal Reserve Interest Rate Decision and Press Conference
• April 29: US GDP Q1 (advance estimate), Jobless Claims, Pending Home Sales
• April 30: Personal Income and Spending, PCE Price Index, Employment Cost Index, Chicago PMI, Univ. Michigan Consumer Sentiment
• May 3: Markit Manufacturing PMI, Construction Spending, ISM Manufacturing, Total Vehicle Sales
• May 4: Balance of Trade, IBD/TIPP Economic Optimism, Factory Orders, API Crude Stocks
• May 5: ADP Employment Report, Markit Services PMI, ISM Non-Manufacturing PMI, EIA Energy Stocks
• May 6: Jobless Claims, Unit Labor Costs, Nonfarm Productivity
• May 7: Nonfarm Payrolls, Wholesale Inventories
• May 10: Consumer Inflation Expectations
• May 11: NFIB Business Optimism Index, JOLTs Job Openings, weekly Redbook retail sales, API Crude Oil Stock Change
• May 12: MBA Mortgage Applications, Inflation Rate, EIA Energy Stocks reports, World Agricultural Supply and Demand Estimates (WASDE) Report, Monthly Budget Statement
• May 13: PPI, weekly Jobless Claims, EIA Natural Gas Stocks
• May 14: Retail Sales, Import/Export Prices, Industrial Production, Manufacturing Production, Capacity Utilization, Business Inventories, Michigan Consumer Sentiment Report, Baker Hughes Oil Rig Count

Thought for the Day

"A smart person will give you smart answers, but a wise person will ask you smart questions.” ~ Anonymous

Disclosures

• American Express (AXP), Intel (INTC), Skyworks Solutions (SWKS) are constituents of the Tematica BITA Digital Infrastructure and Connectivity Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Taxes Politics Economy Stocks Earnings Coronavirus