S&P 500 snaps losing streak with tax hikes, inflation data on horizon

THE S&P 500 closed higher on Monday, ending a five-day losing streak as investors focused on potential corporate tax hikes and upcoming economic data.

The Dow Jones Industrial Average rose 261.91 points or 0.76% to 34,869.63, the S&P 500 gained 10.15 points or 0.23% at 4,468.73 and the Nasdaq Composite dropped 9.91 points or 0.07% to 15,105.58.

Investors favoured value over growth with stocks set to benefit most from a resurging economy enjoying the biggest percentage gains.

“There are probably not a lot of positive surprises coming this month,” said Liz Young, head of investment strategy at SoFi in New York. “We’re having another period of volatility where I think that rotation could go back to cyclicals and the reopened trade as the 10-year bond rate slowly grinds higher through the end of the year.”

Market participants are focused on the likely passage of US President Joe Biden’s US$3.5 tril budget package which is expected to include a proposed corporate tax rate hike to 26.5% from 21%.

Goldman Sachs analysts see the corporate tax rate increasing to 25% and the passage of about half of a proposed increase to tax rates on foreign income which they estimate would reduce S&P 500 earnings by 5% in 2022.

The Labour Department is due to release its consumer price index data on Tuesday which could shed further light on the current inflation wave and whether it is as transitory as the Fed insists.

“I don’t see inflation settling back down under 2% where it was pre-pandemic,” Young added. “Even if some of those transitory forces weaken, we will still stay at a higher rate than we were before.”

Other key indicators due this week include retail sales and consumer sentiment which could illuminate how much the demand boom driven by economic re-engagement has been dampened by the highly contagious COVID-19 Delta variant.

Of the 11 major sectors in the S&P 500, healthcare suffered the largest percentage loss while energy, buoyed by rising crude prices was the biggest gainer.

Shares of vaccine makers Moderna and Pfizer Inc sank 6.6% and 2.2% respectively after experts said COVID booster shots are not widely needed.

Advancing issues outnumbered declining ones on the NYSE by a 1.60-to-1 ratio; on Nasdaq, a 1.02-to-1 ratio favoured advancers.

The S&P 500 posted 12 new 52-week highs and one new low; the Nasdaq Composite recorded 53 new highs and 71 new lows.

Volume on US exchanges was 10.30 billion shares compared with the 9.29 billion average over the last 20 trading days. – Sept 14, 2021

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