European and US futures are trying to recover some of their losses from yesterday. The Dow Jones, and the S&P 500 saw sharp downward moves in their prices yesterday on the back of news that the US President is planning a substantial increase in tax hikes for wealthy individuals.
Under the new proposal, individuals who are earnings over $1 million could see a higher rate pf capital gains tax of 43.4% from its previous level of 39.6%. It is likely that Biden’s proposal will face a really tough time in Senate, and we could be looking at a situation where we face a split Senate. This is one of the reasons that we are seeing markets recovering some of yesterday’s losses.
How Big Was The Sell-off?
The Dow Jones Industrial Average fell more than 300 points by the end of the trading session yesterday. The Nasdaq Composite Index fell 0.9%. The S&P 500 wiped off its earlier gains, and moved lower by 0.9%, while the Nasdaq Composite slid 0.9%. As for the Dow Jones Industrial Average, we saw the index decline by 420 points on Thursday.
This is the first time in nearly five weeks that we are set to post first weekly losses for the Nasdaq, the Dow Jones and the S&P 500 index. There is no doubt that all of these indices went too far and too fast and a correction was strongly on the cards.
Earnings
In terms of corporate profits, Intel reported their quarterly earnings yesterday and the numbers were much stronger than the market expectations. However, the guidance for the second quarter was softer than analysts’ expectations. We are likely to see much higher volatility for the stock as traders will make sense of its earnings, and how the company has positioned itself for the future. Snapchat also posted its earnings yesterday and the revenue number came in at $770 million.
Overall, it would not be a stretched statement to say that the current earnings quarter has been stronger than analysts expectation, but the focus will be on some of the big technology giants next week when they will report their earnings.
Economic Docket
In terms of economic indicators yesterday we saw another strong reading for the Weekly Jobless Claims data and today the focus will be on the Flash Manufacturing PMI number. The forecast for the number is 60.9, while the previous reading was at 59.1.
Yesterday’s strong economic reading did bring some life to the dollar index, however the gains for the index were short lived. Investors are hoping for further improvement in the dollar index on the back of today’s data, and this means we could see currency pairs like EUR/USD and GBP/USD moving lower.
Despite no change in the ECB’s monetary policy, we saw some weakness in the EUR/USD yesterday and we could some more air coming out of this pair if the dollar index picks up more steam. The critical price level for the pair remains at $1.20, a break of this could intensify the sell off. But if the price stays above this price mark, we could see more recovery in the price.