Equity markets are bracing themselves for another busy week after coming under pressure the past week. Reports that the Biden administration is planning to increase the capital gains tax on wealthy Americans continue to weigh heavily on sentiments in the market.
Stocks Under Pressure
A proposal to hike capital gains to 39.6% for those earning more than $1 million, up from 20%, has not gone well with the markets. The S&P 500 was down by about 1% as investors digested the news. While the broader equity index managed to recoup the losses with a 1.1% rebound on Friday, it still ended the week down by 0.13%.
The Dow and the NASDAQ were also down by 0.5% and 0.3% the past week, respectively. In addition, there is growing concerns that the equity markets could hit a soft patch in the coming months. Rising COVID-19 cases and growing concerns that massive fiscal stimulus have already been priced in could take a toll on sentiments.
A closer look at the week ahead, the indexes will once again be in the spotlight as investors brace themselves for a busy week on the earnings announcement front. Futures held steady at the start of the week on Monday, with the S&P 500 falling by less than 0.1%. The Dow was down 5 points while the NASDAQ shed less than 0.1%.
Some of the largest companies poised to report quarterly earnings that will influence the broader equity market include Apple, Tesla, Amazon, Microsoft, Amazon, and Alphabet. With 25% of the S&P 500 companies having already reported results, 84% have reported EPS surprise, with 77% topping revenue estimates.
However, impressive first-quarter results have been met with a lukewarm reception from investors. High valuations and near record-high levels on the major indices have forced investors to stay aback on taking new positions.
Amid the earnings season, the focus will also be on the Federal Reserve, which is poised for a meeting on Tuesday and Wednesday. The central bank is expected to defend its policy of letting inflation run hot. Any surprises could have a significant impact on sentiments in the equity markets.
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