The Tax Plan To Slay The Stock Bull?

A day like almost any other – S&P 500 about to take again on the ATHs until the capital gains tax hike proposal came, shaving off 50 points in stocks within an hour. The 4,415 support held though, both before and after the closing bell. Are we ready to shake off the cold water and resume running higher again?

Depends on where you look – stocks have quite some recovering still to do, and it‘s the precious metals and commodities that are performing best today. Both as an index and sectoral collection, the S&P 500 sustained broad damage, concentrated in the tech heavyweights. The volatility spike has been partially repelled but option traders seem expecting another shoe to drop, which attests to us better dampening expectations of a fast return above 4,170.

Look still though how little has changed, as if the tax raising plans haven‘t been around since the infrastructure bill or implicitly even before. It‘s still April, and markets are pricing in not only this select reality, but broader tax increases coming. Yes, they have woken up, and the reflation paradigm is getting an unwelcome companion. This hit won‘t bring down the bull, but will slow it down – and the implications for broader economy will only hasten the pronounced advent of the commodities supercycle (well underway since the corona deflationary crash last year).

As the Chinese say, may you live in interesting times, and I am glad to have caught the April 2020 turnaround reasonably well. I‘m bringing this up just to say that this isn‘t the time to turn bearish on stocks yet – not in the least. The initial panic is over, real economy keeps recovering (amazing how fast were the reasonably good unemployment claims of yesterday forgotten, right?), inflation expectations aren‘t running progressively hotter, and Treasury yields continue retreating.

Another argument for why this is a storm in a tea cup (I‘m talking merely stock market perspective now, not the very real consequences about to hit the economy like a trainwreck in slow motion), is the Russell 2000 and emerging markets performance yesterday – reasonably bullish given the setback most keenly felt in the S&P 500 and Bitcoin.

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Monica Kingsley 3 weeks ago Author's comment

Gold ignores the stocks and commodities upswing? How come that even silver is down today, and more so than the yellow metal? Seems odd and weak, especially since USD is tanking as I had been calling for. GDX and copper say - don't worry:

(you can see the chart within my status updates, just posted)

Have a great weekend!