27 April 2021
The stock see-saw
US stocks experienced a boost at the end of last week – welcome news, having plummeted on the Thursday following the announcement that President Biden’s government will earmark affluent Americans with tax hikes.
The President’s team divulged details of their suggested tax increases, with the plans outlining that the top marginal income tax rate is set to increase from 37% to 39.6%. However, what was more headline-worthy was the recommendation to almost double the current federal tax rate for capital gains to 39.6%. The higher rate of capital gains tax is likely to impact those whose annual income exceeds $1 million.
US stocks subsequently dwindled, with the three largest US stock indices tumbling by approximately 0.9%. Despite the fact that Biden had made it clear in his campaign that he intended to raise taxes, the declaration still managed to make waves in markets as investors weighed up what it meant for them.
Nonetheless, on Friday, US equities united on positive news regarding the country’s economic revival. Data on jobs and activity were such that US stocks rounded off the week only marginally lower than they started it. Weekly new unemployment claims were the lowest they have been since the crisis broke out, and manufacturing and services numbers displayed stronger activity too.
Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund, wrote:
“We continue to believe that data on US growth and inflation have still got room to surprise to the upside, even given bullish consensus projections.”
Likewise, in the UK, the data indicate that the recent lifting of the national lockdown restrictions is already having positive economic reverberations. On 12 April, non-essential retailers and outdoor hospitality venues received the governmental green light to resume trading. Footfall in retail businesses has markedly increased ever since – according to Capital Economics, in the week leading up to 12 April, it was 65% lower than it was two years ago, but last week it was just 25% lower.
“The rises support our view that monthly GDP will go from being 7.8% below its February 2020 peak this February, to about 3% below by the time most sectors are fully open in July, and back to the February 2020 level before the end of the year,” wrote Paul Dales, Chief UK Economist at Capital Economics.
Peaks and troughs
Last week also heralded news about a certain type of vaccination. For the past year, the world has been busy directing its attention towards the COVID-19 vaccines, yet a rare piece of positive news was announced last week on a different subject. The University of Oxford disclosed that early trials of a new malaria vaccine reveal it is 77% effective against the disease. Malaria is the cause of around 400,000 deaths a year, predominantly those of children in sub-Saharan Africa.
Unfortunately, the COVID-19 outlook wasn’t quite as bright. Granted, some countries are having great success with their vaccination programmes; however, it’s nevertheless a mixed picture across the globe. Last week, for example, India reported the world’s largest-ever one-day jump in new daily COVID-19 infections – this means that the country of 1.3 billion is the new frontline in the global battle against the crisis. Furthermore, Japan declared a state of emergency in Tokyo, Osaka and two other major prefectures following increasing case numbers, and Halifax, in Nova Scotia, implemented a new one-month lockdown.
Needless to say, due to post-vaccine programme market recovery potentially being sabotaged, investors are keeping a very close eye on COVID-19 levels. We’ve all seen how quickly rising case numbers can shut down regional economies, and so it’s wise to exercise caution and be prepared for further peaks and troughs in markets as they react to the ups and downs surrounding COVID-19.
In many countries across the world, life is starting to regain some sense of normality. But, according to Kristina Hooper, Chief Global Market Strategist at Invesco, the interconnected nature of the world today means that negative news about the pandemic has an impact on markets everywhere.
“What happens in Vegas, stays in Vegas… But what happens in Sao Paolo, New Delhi, Paris, Amsterdam, or Los Angeles doesn’t stay there… So, we need to care about vaccinations everywhere.”