U.S. stocks dived on Thursday on reports President Joe Biden planned to almost double the capital gains tax, news analysts said provided an excuse to take profits in a directionless market ahead of big tech’s earnings next week. The TSX also ended lower, with energy, materials and tech sectors all declining by more than 1%.
The three main indexes on Wall Street also fell on reports that Biden planned to raise income taxes on the wealthy, a proposal some said would be hard to pass in Congress.
“If it had a chance of passing, we’d be down 2,000 points,” said Thomas Hayes, chairman and managing member at hedge fund Great Hill Capital LLC.
Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago, said when a proposal is floated about raising taxes or capital gains, everybody gets excited, sells first and asks questions later.
“It is more of a short-term, knee-jerk reaction,” he said.
Biden will propose raising the marginal income tax rate to 39.6% from 37% and nearly double capital gains taxes to 39.6% for people earning more than $1 million, sources told Reuters.
The proposal targets about $1 trillion for child care, universal pre-kindergarten education and paid leave for workers, the sources said.
The S&P/TSX Composite Index lost 111.61 points, or 0.58%, to 19,031.64. While the financials sector was flat, Laurentian Bank rallied 5.62% after announcing that the Canada Industrial Relations Board has revoked the union certification at the bank. The action followed a vote by employees in favour of the revocation. The unionization issue at the bank had been seen as a negative for the stock for some time.
Markets have been listless after the Dow and S&P 500 recently scaled all-time peaks as investors await guidance from Microsoft Corp, Google parent Alphabet Inc and Facebook Inc when they report earnings next week.
“Until we get out of this information vacuum the market is going to be generally directionless,” he said. “All that really matters moving forward is what are those big tech earnings next week?”
During the session, the S&P 500 health-care sector hit a fresh record high while industrials were the biggest gainers.
American Airlines Group Inc and Southwest Airlines Co reported smaller-than-expected quarterly losses, signaling a revival in travel demand. Both stocks fell, with American down 4.5% and Southwest 1.6%.
Investors welcomed data showing the number of Americans filing new claims for unemployment benefits last week dropped to a fresh one-year low. The Labor Department report suggested layoffs were subsiding and expectations were rising for another month of blockbuster job growth in April.
The speedy U.S. vaccination rollout has improved the economic outlook as people plan summer vacations and leisure spending, but a surge in COVID-19 cases in India and elsewhere in Asia has kept investors anxious, Hayes said.
Equities have likely reached a near-term top as expectations are too high, said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
“There’s going to be continued positive moves throughout the remainder of the year but we are due for some sort of a pullback in the very short term,” he said. “Then the dip buyers will step back in.”
First-quarter earnings are expected to increase 31.9% from a year ago, the highest rate since the fourth quarter, according to IBES Refinitiv data.
All 11 S&P 500 sectors closed lower as Microsoft, Apple Inc , Amazon.com Inc and Tesla Inc weighted the most on the downdraft.
The Dow Jones Industrial Average fell 0.94% to 33,815.9, the S&P 500 lost 0.92% at 4,134.98, and the Nasdaq Composite dropped 0.94% to 13,818.41.
Volume on U.S. exchanges was 10.35 billion shares, compared with the 10.32 billion full-session average over the last 20 trading days.
Oil prices were little changed on Thursday as concerns over lower crude production in Libya offset expectations that rising coronavirus cases in India and Japan would cause energy demand to decline.
Brent futures edged up 8 cents, or 0.1%, to settle at $65.40 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 8 cents, or 0.1%, to end at $61.43.
Libya said its oil production fell to about 1 million barrels per day in recent days and could drop further due to budgetary issues.
“The market realized that a global come-back in oil demand cannot come without a come-back of the world’s largest economies,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, noting “India is diving deeper and deeper into a major crisis with infections setting new records every day.”
India, the world’s third-largest oil user, on Thursday reported the world’s highest daily increase to date with 314,835 new coronavirus cases.
Indian Oil Corp Ltd’s (IOC) refineries are operating at about 95% of their capacity, down from 100% at the same time last month, two sources familiar with the matter told Reuters.
Japan, the world’s No.4 oil importer, is expected to announce a third wave of lockdowns affecting Tokyo and three western prefectures, media reported.
Declining issues outnumbered advancing ones on the NYSE by a 1.57-to-1 ratio; on Nasdaq, a 1.04-to-1 ratio favored decliners. The S&P 500 posted 84 new 52-week highs and no new lows; the Nasdaq Composite recorded 86 new highs and 20 new lows.
Also see: Stocks that saw action Thursday - and why
Reuters, Globe staff
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.