The View at Two – 22 April 2021

Lock In Those Gains… So far this week we endured the shock and horror of 2 consecutive red days, then yesterday the S&P rallied back near ATHs to answer the call of the sentiment gut check. Yet even with a barrage of earnings to digest and jobless claims data, today’s action felt very indecisive, with indices’ drifty behavior offering little clue as to what lies ahead for the Reflation trade. The action has picked up however, as reports that President Biden is mulling a top-tier capital gains tax of 43.4% seemingly caught the market off guard. Indices immediately tumbled into the red before trying to regain their footing, but are currently pushing towards new lows once again. It’s hard to pick out many spaces getting especially hard but Semis, FANG, Tech are noticeable decliners (aka those with the most capital gains to be taken). The lone S&P sectors clinging to green are Commercial Services thanks to a beat and raise from Equifax (EFX +15%), and the concentrated Telcos as AT&T (T +3.8%) dialed up the subscriber gains that Verizon’s slippage had hinted at. The rest of the board is red, but notable earnings underperformers include Dow Inc (DOW -5.6%) dragging on Materials and Biogen (BIIB -3.3%) weighing on Pharma. Yields have remained fairly steady, and the Russell has now joined the major indices in the red (IWM -0.5%). Reading through analysis of the tax plan, it seems the number isn’t much different from what’s already been whispered, and of course any ideas have a long road to go before they become law, but clearly this is a case of an indecisive market getting a hard shove to the downside. The market has shown an incredible ability to shrug off anything / everything negative, but this could also mark the arrival of a real headwind that the market has been dreading ever since it began riding the post-election Blue Wave higher…