Biden's Tax Hikes Stunt The Market, But These Stocks Are Rising In Anticipation Of His $2 Trillion Plan

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Stocks are mostly muted near record highs Wednesday morning as investors gear up for President Joe Biden’s afternoon speech on infrastructure—during which he’s expected to announce more than $2 trillion in investments that should bolster growth for industrial and electric vehicle companies, as well as big tax hikes that could threaten the broader market.

Key Facts

Shortly after the market open, the Dow Jones Industrial Average, which ended Tuesday just shy of a record high, was up 0.2%, while the S&P 500 ticked up 0.4%, and the tech-heavy Nasdaq, which has underperformed in recent weeks, climbed 0.8%.

Yields on the 10-year Treasury, which move inversely to stocks, were also virtually flat, ushering in the rise in tech stocks after spiking 10 basis points over the past week.

Heading up gains in the S&P, shares of industrial giants Nucor and Textron are up 3% and 1.4%, respectively, as investors look toward Biden’s massive infrastructure spending.

Biden is expected to set the stage for a “green tidal wave” in the U.S., Wedbush Analyst Dan Ives said Wednesday, pointing to an estimated $200 billion going toward electric vehicle initiatives including tax credits and public charging ports—expected investments that are boosting stocks like Tesla and Fisker by about 2% each. 

On the earnings front, shares of booming pets supplies company Chewy are soaring 15% after the e-commerce firm shattered Wall Street earnings expectations with a surprise profit of $21 million and sales of $2 billion, 51% more than one year ago thanks to an ongoing boost from the pandemic.

Meanwhile, big banks are likely to face new tax penalties, pushing shares of institutional giants Goldman Sachs and Morgan Stanley, which are among firms heading up losses in the S&P Wednesday, down about 0.4% each.

What To Watch For

Taxes. Biden has long supported hiking up the corporate tax rate from 21% to 28%—a big increase but still much lower than the corporate tax rate of 35% under Presidents Obama, Bush and Clinton. Speaking to reporters Tuesday afternoon, an unnamed senior administration official said Biden is proposing a 28% corporate tax rate to offset the full cost of his infrastructure plan over 15 years. Vital Knowledge Media Founder Adam Crisafulli says opposition in Congress from both Republicans and moderate Democrats would likely land a compromise corporate tax rate in between 24% and 25%. 

Key Background

President Biden will debut his long-awaited Build Back Better package in Pittsburgh at 4 p.m. EDT, though many details have already been unveiled. The follow up to the $1.9 trillion American Rescue Plan will be split into two separate legislative proposals. Infrastructure investments will headline the first part of the plan, with more to come on healthcare and childcare in late April. The biggest beneficiaries should be industrial and materials firms, who will be tapped for infrastructure projects, but small-cap businesses, whose sales tend to boom during periods of increased capital expenditure, are also likely to win big, according to Bank of America. But it’s not all good news for big business. Analysts from Goldman Sachs have predicted that Biden’s entire tax plan, including his proposed 28% corporate rate, would reduce 2022 earnings-per-share on the S&P 500 by 9%. 

Crucial Quote 

“The market isn’t sure exactly how to treat Biden’s Build Back Better plan—whether to celebrate another massive splurge of fiscal spending, fear the inflationary implications and possible rate rise, or worry about higher taxes,” Crisafulli said in a Wednesday note. “A combination of all three sentiments seems to be at work.”

Further Reading

Semiconductors, 5G And Electric Car Parts: Stocks To Watch As Biden Pushes Infrastructure Bill (Forbes)

Tech Stocks Fall Again As Yields Spike Ahead Of Biden’s Big Infrastructure Announcement (Forbes)

Who Will Be The Biggest Losers From Biden’s Tax Hikes? (Forbes)