Concerns Of Higher Taxes Lead to Lower Stocks

Few things can drain the market’s energy quicker than threats of higher taxes, which is exactly what we got in Thursday’s session. The major indices may have been able to finish in the green today after another encouraging jobless claims print, but any upward movement was ruined by reports that President Biden is considering a hike in capital gains taxes.

Actually, the reports say that he proposes nearly doubling the rate to 39.6% from 20% for people making $1 million or more. Now, this is probably just the opening move in Congressional negotiations, where the Democrats hold a slim majority over the Republicans. Nevertheless, investors don’t like hearing that taxes may double, especially when they’re already skittish about a frothy market.

As a result, the major indices all dropped by nearly 1% on Thursday. The Dow dipped 0.94% (or about 321 points) to 33815.90, while the S&P was off 0.92% to 4134.98. The NASDAQ was also down by 0.94% (or nearly 132 points) to 13818.41.

Unfortunately, another fantastic jobless claims report was wasted. The number for last week was 547,000, which beat expectations that were north of 600K. It also marked a new pandemic low after bettering last week’s upwardly revised print of 586K.

The big news of the week (at least until today) has been the better-than-expected start to earnings season. However, a good report doesn't always lead to a rise in share price. Take Intel (INTC) as the latest in a long string of examples. The chipmaker beat on both the top and bottom lines after the bell today, and even raised its guidance for the full year. But it wasn't enough for the market, which was concerned with a drop in the data center segment. Shares of INTC are down 2.8% afterhours as of this writing.

Stocks have now slipped in three of the past four sessions, leaving the major indices with declines of more than 1% each heading into Friday. The Dow and S&P are on four-week winning streaks, while the NASDAQ has a three-week run.

Today's Portfolio Highlights:

Surprise Trader: Not only has Avnet (AVT) beaten the Zacks Consensus Estimate for the past four quarters, but it has also amassed an average surprise of 389% in that time. Now it has a positive Earnings ESP for the quarter coming after the bell on Wednesday. AVT is one of the world’s largest distributors of electronic components and computer products, which makes it part of a space in the top 6% of the Zacks Industry Rank. Dave added AVT on Thursday with a 12.5% allocation, while also selling Alcoa (AA) for a 6.6% return in two weeks. Read the full write-up for more.

Insider Trader: In October of 2020, this portfolio cashed in two triple-digit profits from Bed Bath & Beyond (BBBY) as the specialty retailer was in the midst of a turnaround. So Tracey certainly paid attention when three insiders picked up shares in recent days. The CFO bought 20,000 shares on April 16, while two directors also got involved. Shares of BBBY are down 16.8% in the past month, but the company should be a big beneficiary of the upcoming economic boom. Therefore, shares look pretty cheap right now. The service had some cash on hand, so the editor added BBBY on Thursday with a 10% allocation. Get more specifics on this new addition in the complete commentary.

Counterstrike: "Taxes are a fundamental driver of investment, so a drastic rise like that would really harm the market. While I think some hike was expected, a move this large was not. I don't think this could pass, but we have to realize this will be a big risk until the potential tax structure becomes clear.

"That being said we have a new risk. In a market that is approaching bubble territory, just a little prick can cause violent sell offs like we saw today. The S&P stopped short of yesterday's lows so the 4120 will be the one to watch over the next week.

"This week really got interesting quickly. More details on this should be out over the next 24 hours. Stay tuned!" -- Jeremy Mullin

All the Best,
Jim Giaquinto

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