Stocks mostly rose on Monday, with Wall Street clawing back some of the losses from last week—one of the worst for markets in months. A lower-than-expected capital gains tax hike proposal didn’t hurt, either.
The Dow Jones Industrial Average gained 264 points, or 0.75%, snapping a five-day losing streak for the index. The S&P 500 rose 0.25%, also ending five days of losses, while the Nasdaq Composite dropped 0.1% to close in a four-day losing streak, its longest losing streak since July 19.
Almost 60% of S&P 500 stocks were up and 23 of the Dow’s 30 components gained, according to FactSet.
House Democrats have proposed a capital gains tax rate hike that was lower than many had feared. The party’s new tax policy proposal includes a hike to 25% from 20% on capital gains, more benign than the feared raise to 39.6%.
The Democrats also proposed a corporate tax hike to 26.5% from 21%, though President Biden had initially desired a raise to 28%.
Investors, though, have a tendency to buy dips after the type of pullback recently seen. In 14 instances which the S&P 500 fell roughly 1% in a week since the pandemic began, the index rose the following week 11 times, according to Instinet. The average gain was 3.2%.
Investor attention is focused on Tuesday’s release of key U.S. inflation measures: the August consumer-price index, and core CPI, which ignores food and energy prices. Inflation concerns have been central to the narrative of markets in recent months, especially the debate over whether high year-over-year readings represent transitory or more permanent inflation.
The central bank is in the process of considering the end of its Covid-19 pandemic-era program of monthly asset purchases, which add liquidity to markets. A decision on slowing, or tapering, purchases is expected this month or next.
“We’ll have to rely on the data to form our opinions on what the Fed will decide next week and in the final months of the year, starting with the inflation readings on Tuesday,” writes Craig Erlam, senior market analyst at Oanda.
Another important factor investors are considering going forward: stocks look pricey. Many strategists predict rising bond yields, with the 1.33% 10-year Treasury yield almost a percentage point below long-term inflation expectations. Should the yield rise from here, stock valuations could fall because future profits would become less valuable. Additionally, earnings could fall if the Democrats’ corporate tax proposal becomes law. Goldman Sachs strategists say that if that tax rate goes to just 25%, aggregate S&P 500 earnings would fall 5%.
In Asia, Tokyo’s Nikkei 225 rose 0.2% while the Shanghai Composite increased 0.3%. Hong Kong’s Hang Seng Index fell 1.5%.
Technology stocks were under pressure in Hong Kong after a report in the Financial Times said that Chinese regulators want to break up Alipay, the payments app with more than one billion users that is owned by Alibaba founder Jack Ma’s Ant Group. Shares in Alibaba fell more than 4%, with Tencent stock down near 2.5%.
In Europe, London’s FTSE 100 rose by 0.55%, while the pan-European Stoxx 600 rose 0.3%. Paris’ CAC 40 gained 0.2% while the DAX in Frankfurt was up 0.6%.
Oil prices rose, with futures for WTI crude up 1.3% to $70.61 a barrel. Analysts noted that crude supply remains affected by a slow recovery from Hurricane Ida. OPEC, the organization of oil-producing nations including Saudi Arabia, is set to release its monthly outlook Monday.
On the earnings front, software group Oracle (ticker: ORCL) is among the companies reporting financial results.
Apple (AAPL) stock rose 0.4% even after reports Epic Games had appealed a ruling regarding the tech giant’s app store.
MGM Resorts International (MGM) stock rose 1.8% after getting upgraded to Outperform from Market Perform at Bernstein.
Carlyle Group (CG) stock rose 1% after getting upgraded to Outperform from Market Perform at BMO Capital Markets.
CrowdStrike Holdings (CRWD) stock dropped 3% after getting downgraded to Neutral from Buy at Goldman Sachs.
Nike (NKE) stock fell 2.4% after getting downgraded to Neutral from Buy at BTIG Research.
Virgin Galactic Holdings (SPCE) stock fell 3.6% after the company postponed its next flight to mid-October because of a manufacturing defect.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
