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U.S. stocks push higher as investors shake off tax jitters

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Stocks traded higher Friday, lifted by data indicating an acceleration in private-sector economic activity and another round of red-hot new home sales, after markets dipped Thursday on reports President Joe Biden would propose a large increase on the capital-gains tax for the wealthiest Americans.

A busy week of corporate earnings reports is also coming to a close.

What are major benchmarks doing?
  • The Dow Jones Industrial Average
    DJIA,
    +0.69%

    rose this afternoon by 252 points, or 0.75%, to 34,068.

  • The S&P 500
    SPX,
    +1.17%

    was up about 50 points, or 1%, near 4,185.

  • The Nasdaq Composite
    COMP,
    +1.52%

    jumped 207 points, or 1.5%, to near14,026.

On Thursday, the Dow tumbled 321.40 points, or 0.9%, for its biggest one-day fall since March 4, while the S&P 500 and Nasdaq Composite also fell 0.9%. All three benchmarks are still on track for weekly declines.

What’s driving the market?

Stocks are seeing some recovery Friday, with all major sectors in the S&P 500 advancing, after the indexes turned south Thursday when Bloomberg News and others reported that Biden would propose a hike in the capital-gains tax rate to 39.6% from 20% for individuals making more than $1 million a year. While the reports dented sentiment, analysts noted that the proposal was in line with Biden’s campaign promises and predicted a hike would be scaled back in congressional negotiations.

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“The 39.6% figure is very much in line with the campaign pledge and shouldn’t shock, but the fact we’ve seen selling of risk suggests the market is far more sensitive to bad news, and this will happen when froth is prevalent,” said Chris Weston, head of research at Pepperstone, in a note. “Consolidation seems to the order here in the short-term and it feels like we’re at the mercy of a period of choppy price action,” he said.

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David Joy, Ameriprise Financial’s chief market strategist, also sees stocks recovering from the market’s surprising “knee-jerk reaction” to reports the White House will propose increasing tax rates.  “It was no secret,” Joy said Friday in a phone interview. “President Biden had campaigned on those very details.” 

Joy expects stocks will continue to be buoyed by a stronger economy as the pandemic persists.

In U.S. economic data, the IHS Markit purchasing managers index for the manufacturing sector rose to a record 60.5 in April from 59.1 a month earlier, while the services sector PMI jumped to 63.1 from 60.4. A reading of more than 50 indicates an expansion in activity.

New home sales rose to a seasonally-adjusted annual rate of 1.021 million in March, the U.S. Census Bureau reported — the fastest pace since 2006. Month-over-month, sales rose 20.7%. Also, the Census Bureau revised the sales figure for February up to a rate of 846,000, from the originally reported rate of 775,000. 

Which companies are in focus?
What are other markets doing?
  • The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    was little changed Friday afternoon at 1.56%. Yields and bond prices move in opposite directions.

  • The ICE U.S. Dollar Index
    DXY,
    -0.41%
    ,
    a measure of the currency against a basket of six major rivals, fell 0.4% to 91.00.

  • Bitcoin
    BTCUSD,
    -3.51%

    was down almost 4% Friday afternoon in a move that some observers tied to tax jitters, with the digital asset falling below $50,000.

  • Oil futures moved higher in choppy trade, with the U.S. benchmark
    CL00,
    +0.77%

    up 0.5% or 33 cents at $61.76 a barrel.

  • Gold futures gave up modest early gains to trade lower, with the June contract
    GCM21,
    -0.26%

    down 0.3% at $1,776.70 an ounce.

  • In Europe, the Stoxx 600 index
    SXXP,
    -0.13%

    slipped 0.1% and London’s FTSE 100
    UKX,
    +0.00%

    was flat.

  • In Asia, the Shanghai Composite
    SHCOMP,
    +0.26%

    rose 0.3%, Hong Kong’s Hang Seng Index
    HSI,
    +1.12%

    jumped 1.1% and Japan’s Nikkei 225
    NIK,
    -0.57%

    fell 0.6%.

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