US stocks rebounded on Friday as Wall Street reevaluated concerns raised by news that the White House might seek a capital gains tax hike.
The Dow Jones Industrial Average rose 227.59 points, or 0.7%, to 34,043.49 as Goldman Sachs and JPMorgan stocks rose 227.59 points, or 0.7%. The S&P 500 rose 1.1% to 4,180.17, led by Financials and Materials, while the tech-heavy Nasdaq Composite rose 1.4% to 14,016.81.
The S&P 500 ended a turbulent week down just 0.1%, while the Dow and Nasdaq fell 0.5% and 0.3%, respectively, over the course of the week.
Wall Street had a tumultuous meeting for stocks after several news outlets reported Thursday afternoon that President Joe Biden is expected to propose much higher capital gains taxes for the rich.
Bloomberg News reported that Biden plans to increase capital gains tax up to 43.4% for wealthy Americans.
The proposal would increase the capital gains rate for those earning $ 1 million or more from the current 20% to 39.6%, Bloomberg News said, citing people familiar with the matter. Reuters and the New York Times later also reported similar stories.
However, given tight Democratic majority control in Congress, such tax legislation could face challenges, and many on Wall Street believe a less dramatic increase is more likely.
“We expect Congress to pass a scaled-down version of this tax hike,” Goldman Sachs economists wrote in a note. “We expect Congress to agree on a more modest increase, possibly 28%.”
Meanwhile, US taxable domestic investors own only about 25% of the US stock market, according to UBS. The rest of the market is in accounts that are not subject to capital gains tax, such as B. Retirement accounts, foundations and foreign investors. Therefore, even with a higher tax rate, the impact on overall stock prices should be limited.
“We would expect opportunistic investors who are not affected by this proposal to step in and benefit from lower prices,” said UBS strategists in a statement on Friday.
Intel stock fell more than 5% after it released an earnings forecast in the second quarter that fell below analysts’ hopes. American Express fell over 4% after the credit card company reported quarterly revenue that fell slightly short of forecast.
Snap stock, meanwhile, rose 7.5% after the company posted accelerated revenue growth and strong user numbers in the first quarter. Snap broke even on balance with sales of $ 770 million.
Companies so far have largely managed to beat Wall Street’s predictions for the earnings season. Even so, strong first quarter results have been met with a tepid reaction from investors who have not yet bought shares in companies with some of the best performing.
Strategists say that already high ratings and near record highs for the S&P 500 and Dow have kept traders’ excitement in check. However, the indices are within 1% of their all-time high.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign in to start a free trial today
