The US stock market may buckle amidst all uncertainties but confidence in the drivers of the economy can restore hopes for better days ahead.
The US stock market indices closed the first quarter of the year with an impressive leap as investors re-affirms their love for high-growth tech stocks. The S&P 500 Index (INDEXSP: .INX) closed Wednesday’s session 0.36% higher to 3,972.89 while the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) surged 1.54% to 13,246.87. Amidst these growths, the Dow Jones Industrial Average (INDEXDJX: .DJI) slipped 0.26% to 32,981.55.
Despite this daily loss, the Dow Jones ticked off as the best performer for the month of March rising 6.6% with the S&P 500 trailing behind recording a 4.3% growth. The Nasdaq Composite saw only a growth of 0.4%. Additionally, the Dow Jones led the rally for the first quarter, rising 7.8% as against the 5.8% for the S&P 500 and 2.8% for the Nasdaq Composite respectively.
Tech stocks also bounced as the quarter ended yesterday and investors weighed in on President Joe Biden’s infrastructural plans. Facebook Inc (NASDAQ: FB) surged 2.27% to $294.53, Apple Inc (NASDAQ: AAPL) saw a 1.88% growth to $122.15, Google’s parent company Alphabet Inc (NASDAQ: GOOGL) ended Wednesday’s session with a 0.78% jump to $2,062.52. Netflix Inc (NASDAQ: NFLX) and e-commerce giant Amazon.com Inc (NASDAQ: AMZN) also both gained 1.61% and 1.27% respectively.
“Investors ‘sell the news’ of President Biden’s infrastructure plan and lean away from infrastructure beneficiaries – Energy, Materials, Industrials – and into the Tech-laden sectors that have been ‘beneficiaries’ of the pandemic,” said Chris Hussey, a managing director at Goldman Sachs. The bill “was largely in-line with expectations and is being met with indifference by stock markets that have perhaps pre-traded this spending for weeks already.”
The infrastructure plan seeks to raise the corporate tax to 28% to fund the $2 trillion plans the President hopes will help rebalance the nation’s infrastructure for the next 15 years.
Will the US Stock Market Buckle as Corporate Tax Gets Hiked?
There are industries that are bound to benefit directly from the infrastructure plan including the energy, materials, financials, and industrials industries but investors, in general, are more concerned about the broader impact of increased corporate tax on the back of inflation-spiked fiscal stimulus rollout.
“Economic stimulus is no longer 100% virtuous in the eyes of the market,” Tom Essaye, founder of Sevens Report, said in a note. “That’s because it will bring with it 1) Higher yields, 2) Rising inflation expectations, and 3) Erosion of the idea that the Fed will be on hold for the entirety of 2021. Additionally, all this stimulus is being used to offset and usher in tax increases on individuals, corporations, and investments.”
The US stock market may buckle amidst all these uncertainties but confidence in the drivers of the economy can restore hopes for better days ahead.
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