Markets Weekly Recap
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- Global markets slide as rising cases threaten the economic rebound
- Higher taxes proposed by Biden push equities to the downside
Last week turned out to be a rather difficult time for assets to continue their ascend to higher levels. Global markets slid as soon as the session kicked off on Monday. US equities pulled away from their record highs on the back of increasing coronavirus cases both in and outside the US. European markets were also in the red most of the week with the sell-off intensifying on Wednesday when the pan-continental Stoxx Europe 600 dropped nearly 2% on the day.
On the economic news front in Europe, the European Central Bank reiterated it will keep easy money policies going for the foreseeable future as a way to buoy the European economy. ECB President Christine Lagarde said during the news conference on Thursday she expects the eurozone economy to rebound as soon as the second quarter of this year. Projected GDP growth for the eurozone from April to June is expected to land at 6% on an annualized rate. In contrast, the Federal Reserve forecasts US GDP growth to reach as high as 10% for the same period.
Tax Announcement Shakes the Stock Market
On Thursday, a largely expected announcement by the Biden administration rattled the stock market. President Biden is set to raise taxes to 56.7% for wealthy individuals. As soon as next week, Mr. Biden is expected to make the proposal public. It envisions the capital gains tax to be raised almost double, from the current rate of 20% to 39.6%. Wealthy individuals in California, a higher-tax state, could pay up to 56.7%, whereas New Yorkers may pay 52.22% in taxes. The proposal prompted a heavy sell-off that resulted in stocks dropping around 1% on Thursday, the most in one month.
Higher taxes are intended to serve as funding for the American Families Plan, part of the big-ticked infrastructure spending worth $2.25tn. The plan, soon to be unveiled, is expected to include paid family leave, free community college, and other measures focused on education and domestic policies. The tax increases could bring as much as $370bn in a decade to help fund the plan. Republicans have already voiced their concerns over the proposal, saying it will make the US less competitive and prompt US businesses to seek tax havens outside the US.
Meanwhile, cryptocurrencies also registered a drop this week. Bitcoin went down more than 15% Monday through Friday as crypto enthusiasts were unable to recover the token’s price since last weekend’s sell-off.
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