Stocks fall on Biden’s plan to waive capital gains tax

US stocks suffered their biggest drop in five weeks after President Joe Biden reportedly proposed to nearly double capital gains taxes for the wealthy. The dollar has risen.

The S&P 500 fell after Bloomberg News reported that for those earning US$1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could reach 43.4%. Speculation has arisen that some traders may sell shares before any changes are made to capture the lower rate. Stocks moved up and down throughout the session amid mixed economic data and renewed concern over the worsening pandemic.

All major S&P 500 groups fell, led by materials, energy and technology stocks. AT&T Inc. rallied after beating earnings estimates. Data showed sales of previously owned U.S. homes fell in March to a seven-month low, while jobless claims fell unexpectedly last week.

“The sticker shock on some of these fiscal numbers will be hard for some investors to shake off,” Edward Moya, senior market analyst at Oanda, wrote in a note. “Some traders are looking for an excuse to lock in profits and they might choose to use this tax story as a catalyst.”

An indicator of market breadth suggests that investor concerns remain. The percentage of members of the Russell 2000 trading above their 50-day moving average has fallen below 40%, compared to around 80% for the large-cap S&P 500, a bit on a record high, according to data compiled by Bloomberg dating back to 1995. It’s too early to tell if this can turn into something bigger, but previous cases have led to subsequent pressure on US stocks, wrote Jason Goepfert, founder of Sundial Capital Research, in a note to customers.

Elsewhere, Bitcoin fell for the sixth time in seven days, extending losses after the higher capital gains proposal was revealed. Investors already face capital gains tax if they hold the cryptocurrency for more than a year.

Here are some key events to watch this week:

  • The United States releases new home sales data on Friday.

Here are some of the major moves in the markets:

Shares

  • The S&P 500 fell 0.9% at 4 p.m. New York time.
  • The Stoxx Europe 600 index rose 0.7%.
  • The MSCI All-Country World Index fell 0.2%.

Currencies

  • The Bloomberg Dollar Spot Index gained 0.2%.
  • The euro fell 0.2% to settle at US$1.2012.
  • The Japanese yen was little changed at 108.03 to the dollar.

Obligations

  • The yield on 10-year Treasury bills fell one basis point to 1.55%.
  • Germany’s 10-year yield climbed one basis point to -0.25%.
  • The UK 10-year yield was unchanged at 0.74%.

Merchandise

  • West Texas Intermediate crude rose 0.5% to US$61.65 a barrel.
  • Gold fell 0.5% to US$1,783.60 an ounce.

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