In April, the US major indices Dow Jones, S&P 500 and Nasdaq100 climb to a new record level and several tech stocks including Alphabet and Facebook jump to a fresh all-time high. The rally boosted by robust corporate earnings and massive fiscal stimulus. Meanwhile compared to the first half of April the second half was slightly muted following a report that the Biden administration would propose to increase the capital gains tax.
"It is time for corporate America and the wealthiest 1% of Americans to just begin to pay their fair share," US President Joe Biden said last week.
The Biden Tax plan – highlights
US President Biden’s tax proposal first started circulating on April 22. He proposed raising the capital gains tax rate for those earning more than $1 million a year from 20% to 39.6%. Capital gains taxes are those that investors pay on the profit made from selling assets, which includes equities and Cryptocurrencies. Biden also planning to increase the corporate tax rate to 28% from 21%.
So, the question is whether the markets really worry about the Biden tax plan?
Considering the strong bullish rally in April, I would like to point out few market movements since Mr Biden unveiled the Tax plan.
Bitcoin slumped below 50k
Bitcoin dropped below the $50,000 mark for the first time since early March amid speculation that the US will double taxes on digital currency profits. Bitcoin has risen more than 70% this year and if the bearish momentum continues the next crucial support to watch $40000.
Dow Jones pause the upside rally
The Dow Jones hits a new record high in April. While in the last two weeks of April, we saw the Index was shy to break new highs and always closed slightly lower by end of the day. So, this could indicate a pause to its recent rally and indecision within the uptrend as some of the investors were busy in profit-booking before the tax hike takes effect.
On the other hand, the tech giants Apple and Microsoft shares failed to shine and didn't have big weekly moves despite the strong earnings results.
"In the U.S., of course, the new administration is putting together proposals, we haven't seen all the details yet, so it doesn’t make sense for us to speculate," Apple CFO Luca Maestri said after the company’s earnings call.
Uncertainty is uncertainty, and it won’t be over until it is over. However, getting a capital gains tax increase won't be easy because some Democrats already opposed the idea. Overall, there may be a short-term consolidation in the markets without any major disruptions. And I recommend to everyone, don’t be panic, take a longer-term view and stick to an investment plan.
Trading is risky and your entire investment may be at risk. Please ensure that you fully understand the risks involved.