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Despite Strong Economic News, Proposed Tax Increase Causes Markets to Edge Lower Thumbnail

Despite Strong Economic News, Proposed Tax Increase Causes Markets to Edge Lower

Despite strong economic news, the Dow (-0.4%), NASDAQ (-0.3%), and S&P 500 (-0.1%) all edged lower for the week.  Meanwhile, taxable bonds and tax-free municipal bonds were flat to up slightly (0.2%) for the week.  For the year, the stock markets are still up about 10%, while taxable bonds are down about 3%, and tax free municipal bonds are up over 1%.


Contrary to most weeks in the past few months, interest rates didn’t occupy the headlines, as they were less volatile and decreased slightly last week.  Corporate earnings reports continued to pile in, and are demonstrating the strongest quarterly growth since 2010, and unemployment numbers were the best (lowest new claims) since the beginning of the pandemic.  However, this positive economic news was offset by a proposed tax increase by President Biden that would essentially tax capital gains at a higher rate for individuals making greater than $1 million in income.  Why would that impact the stock market?  Well, rather than having the desired capital gains rate of 20% at that income level, the tax rate on capital gains would nearly double for those high income earners.  As a result, this could cause a decreased demand on stocks, imposing pressure on their prices.  Some pundits think this tax hike may not pass as proposed, and could become a horse trade in Washington, like most other laws they seem to propose.  As with nearly everything else, only time will tell, so this proposed tax bill impact will impact very few of our investing and financial decisions at this time.

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