A shortened trading week due to Easter celebrations had plenty of important economic and business news. S&P 400 crossed and closed above the 4,000 level for the first time, news about an infrastructure proposal of $2.25 trillion was released and a very strong jobs market report showed that economic recovery may surprise us.

All major stock indices closed higher with small-cap stocks outperforming and tech stocks bouncing back. What is important is to monitor and evaluate the advantages of this new and huge infrastructure plan and its cost, namely higher taxation.

A large attribution for the US stock market rally during Trump’s administration can be attributed to lower taxation for corporates. Now Biden’s administration is proposing to increase the corporate tax from 21% to 28%. How will the stock market react to this?

The first answer is that higher taxes, means lower profits, and therefore should harm the valuation of stocks. And we are now at historic all-time highs for major stock indices.

The sectors that seem to benefit from this infrastructure plan throughout eight years of spending are infrastructure and manufacturing, clean energy, and research and development. But my worry is this. Is President Biden so sure he will be reelected and that the suggested tax plan to fund this infrastructure package will be implemented in the next 15 years? What if Republicans win and start making changes to taxation again? There is an important fundamental gap.

Economic News

Big news about the labor market the previous week. While both Continuing Jobless Claims and Initial Jobless Claims were worse than expected, the Non-farm payrolls figure was a beat with a figure of 916 K, much higher than the consensus of 647 K. The Unemployment rate kept unchanged at 6.0%, and consumer confidence increased to its highest level since the start of the pandemic.

The ISM Manufacturing PMI was also a beat with a figure of 64.7 higher than the consensus of 61.3. This shows strength in the overall economic condition in the US.

U.S. Stock Market Weekly Performance

The major US stock market indexes closed as follows on April 1, 2021:

• Dow Jones Industrial Average: Close 33153.21, +0.2%  for the week, +8.3% YTD (DIA)

• S&P 500 Index: Close 4019.87 , +1.1% for the week, +7.0% Year-to-date (SPX)

•  Nasdaq Composite Close 13480.11 , +2.6% for the week, +4.6%, Year-to-date (NDX)

Economic events for the week April 5- April 9, 2021:

Important economic data for the next week will be the weekly Initial and Continuing Jobless Claims, the ISM Services PMI, the FOMC Minutes.

Sources:

https://www.wsj.com/market-data/stocks/us/indexes

https://www.fxstreet.com/economic-calendar