23.04.2021 - As of noon on Friday, global equities contracted from recent records amid rising COVID-19 cases and a potential increase in capital gains tax that had investors questioning high equity valuations. The yield on the benchmark US 10-year Treasury note remained flat at 1.56%. The price of a barrel of West Texas Intermediate crude oil declined to $61.85 from $63.35 last week while volatility, as measured by the Cboe Volatility Index (VIX), rose from 16.5 to 17.4.
Speculative sectors take a hit
The appetite for the riskier parts of the market has dropped even as the broader market has advanced. While the S&P 500 Index is up more than 70% over the past 12 months, hot areas of the market – such as SPACs (special purpose acquisition companies), IPOs, cannabis, clean energy, 3D printing and lithium/batteries – have declined between 18% and 42% from their 52-week highs. These riskier parts of the market peaked in mid-February as rising interest rates became a significant headwind. Conversely, investors poured $16.4 billion into global bond funds and $14.9 billion into money market funds in the week ending 21 April, according to Refinitiv Lipper data, as concerns about a global rise in COVID-19 cases prompted moves toward safer assets.
Earnings, cyclicals and small-caps
The 67 S&P 500 companies that have beaten earnings estimates this reporting season have averaged a one-day drop of 0.62% following the release, according to data from Bespoke Investment Group. That is far below the long-term average gain of 1.86% following earnings beats over the past 15 years. In addition, cyclical stocks, such as airlines and cruise lines, rebounded as economic recovery plays benefited after declining to start the week. Small-caps also surged more than 2% mid-week and have gained over 13% this year.
India buckles over latest wave
India’s coronavirus crisis is deepening, with hospitals overwhelmed from the second wave of infections. The South Asian country reported 332,730 new cases and 2,104 deaths within a 24-hour period on Friday, which represented world daily case highs on successive days as well as the eighth straight day that India’s daily case count exceeded 200,000. Cases have been rising since February and India has reported more than 4 million new cases and at least 24,452 deaths thus far in April. The total cumulative cases have topped 15 million, making India the second worst infected country behind the United States.
SPAC transactions grind to a halt
After a record of 109 new SPAC deals in March, issuance has now come to almost a standstill with just 10 SPACs thus far in April, according to data from SPAC Research. Special purpose acquisition companies celebrated a milestone in the first three months of 2021 by breaking its 2020 issuance record. SPACs raise capital in an initial public offering and use the cash to merge with a private company and take it public. The drastic slowdown stemmed from accounting guidance issued by the Securities and Exchange Commission that would classify SPAC warrants as liabilities instead of equity instruments.
Biden to propose higher capital gains tax
President Joe Biden will seek to raise taxes on millionaire investors to fund education and other spending priorities. As part of the plan, Biden will pursue an increase on the tax on capital gains to 39.6% from 20% for those Americans earning more than $1 million. The president is expected to release the proposal formally next week as a way to fund spending in the $1 trillion American Families Plan, which could include measures aimed at helping US workers learn new skills, expand subsidies for childcare and make community college tuition free for all.
Canada reacts to third wave
Canada rolled out a stimulus plan amid a punishing third wave of COVID-19 cases that is aimed at boosting economic growth. The C$101 billion ($81 billion) plan includes spending commitments spread over three years to extend COVID-19 benefits, bringing in a childcare program and tackling climate change. Canada’s budget deficit is forecast to hit C$155 billion ($124 billion) in the fiscal year ending next March, which is 28% higher than the deficit estimate from last November.
Minneapolis police officer Derek Chauvin was found guilty on three felony charges stemming from the killing of George Floyd last year.
The European Commission, the executive arm of the EU, announced a new set of rules that aim to clarify the classification of a green investment. The regulation is expected to simplify the decision for investors to back projects that will contribute to the planet's sustainability.
First-time claims for US unemployment insurance totaled 547,000, which was below the estimate of 603,000 and represented a new low for the COVID-19 era.
US mortgage application volume surged 8.6% last week following a two-month low in interest rates, according to the Mortgage Bankers Association’s seasonally adjusted index, representing the first increase in weekly applications since the end of February.
The global death toll from the coronavirus topped three million people amid repeated setbacks in the worldwide vaccination campaign and a deepening crisis in places such as Brazil, India and France.
Analysts believe the record breaking Wall Street bank bond offerings in recent days were driven by extraordinary market conditions and regulatory decisions that can be traced to the government's pandemic relief efforts.
Chinese President Xi Jinping said his country will not pursue hegemony (one state's control over others) regardless of how powerful it becomes, and he called for a "more fair and equitable" global governance.
US health officials confirmed fewer than 6,000 cases of COVID-19 in fully vaccinated Americans. However, the CDC chief acknowledged that the number could be an underestimate.
Copper prices rose as global stock markets hit record highs and the dollar fell, with many analysts and traders expecting the metal to rally to new 10-year highs.
The US Treasury named climate change financial adviser John Morton to head the department’s new climate hub to foster green finance and use tax policy and financial risk assessments to help reduce carbon emissions.
Women are paying up to 7.6% more for car insurance than men according to research from insurance comparison site, The Zebra. Woman are paying higher premiums in 21 states and the District of Columbia despite getting into fewer accidents, the study found.
Global energy-related carbon emissions are on track to surge nearly 5% this year, according to the International Energy Agency, reversing most of last year’s decline caused by the coronavirus pandemic.
Canadian housing starts rose nearly 22% in March compared with February, easily beating expectations and establishing a new record.
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