What happens: Biden’s $ 2 trillion infrastructure proposal, called the American Jobs Plan, would raise the corporate tax rate from 21% to 28%. Treasury Secretary Janet Yellen on Monday also called for a global minimum corporate tax to halt a “race to the bottom” in which multinational corporations book profits in countries with the most forgiving tax regimes.
“Together we can use the global minimum tax to ensure that the world economy thrives on a level playing field in the taxation of multinational corporations, promoting innovation, growth and prosperity,” Yellen said in a speech to the Chicago Council on global affairs.
You would expect such policy goals to scare stock investors as higher taxes weigh on corporate profits. But Wall Street roared higher on Monday. The Dow and S&P 500 closed at all-time highs.
Strategists say investors wait to get a better sense of the momentum shaping the upcoming tax debate before making decisions about their portfolios. However, there is reason to believe that some major revaluations may be required.
In years when both corporate and individual taxes have increased, stocks averaged 2.4% returns, according to Julian Emanuel, Chief Equity and Derivates Strategist at BTIG. The following year the average was -0.9%. This compares to a long-term annual average of 7.7%.
Last summer, Dave Zion of the Zion Research Group came up with the numbers on how Biden’s tax could affect corporate profits. He estimated S&P 500 companies could see profits drop nearly 10%.
Big picture: We are still at an early stage in the tax proposal debate. But if the negotiations don’t completely collapse, there will be higher costs for businesses – a fact that is not yet fully appreciated by the markets.
Jeffrey Sacks, Head of Investment Strategy in Europe, Middle East and Africa at Citi Private Bank and a member of the company’s Global Investment Committee, told me that due to the confusion about the details, including when to schedule, investors have not would have reacted strongly higher taxes could take effect.
The UK, which has announced plans to increase taxes on the country’s largest companies, is a “leading indicator”. However, the UK government has no plans to implement the increases until 2023 after the economic recovery from the pandemic has largely impacted.
“We expect almost the same in the US,” said Sacks.
Watch this area: sentiment could change in the months ahead as investors move from worries about inflation to worries about a new tax regime. Goldman Sachs noted that in 2017, when former President Donald Trump’s tax cuts were discussed, investors took action just a month before the bill was passed. The effects on the US markets were then felt until mid-2018.
Credit Suisse fails when the bank scores a giant Archegos hit
The collapse of US hedge fund Archegos Capital last month cost Credit Suisse nearly $ 4.7 billion and two of the bank’s top executives to work.
The Swiss bank announced Tuesday that it is expected to post a pre-tax loss of 900 million Swiss francs ($ 959 million) for the first quarter of this year after breaking 4.4 billion Swiss francs ($ 4.7 billion ) had been billed for the failure of Archegos.
Swiss credit (( Brian Chin, his top investment banker, and Lara Warner, chief risk officer, would both be leaving the bank. Other board members will not receive any bonuses for the 2020 financial year, and board chairman Urs Rohner will pay compensation in the amount of 1.5 million francs (1.6 million US dollars). )
Thomas Gottstein, who became CEO last year, will remain in his job.
“The substantial loss … related to the failure of a US-based hedge fund is unacceptable,” Gottstein said in a statement. “Serious lessons are being learned. Credit Suisse remains an impressive institution with a rich history.”
Credit Suisse also said it would cut its dividend and suspend share buybacks.
Remember: Archegos imploded in March after using borrowed money to build massive positions in stocks, including media companies ViacomCBS and Discovery. Credit Suisse and the Japanese Nomura were among the most important institutions exposed to losses.
It’s not the only stumbling block for Credit Suisse in recent weeks. In early March, $ 10 billion in mutual funds linked to the failed UK supply chain finance firm Greensill Capital, which provided cash advances to companies that owed money from customers, was frozen.
Investor Awareness: Bank stocks have risen this year on expectation of a robust economic recovery. But not Credit Suisse. Swiss bank shares fell more than 10% in 2021, while competitor UBS rose 21%. The KBW Bank Index, which tracks US lenders, is up around 25%.
Is the NFT bubble already bursting?
Non-fungible tokens or NFTs were all the rage. But their popularity may already have peaked.
Prices for NFTs, the digital certificates that have taken the world of art and collectibles by storm, have fallen about 70% from their February peak, reports my CNN business colleague Paul R. La Monica.
The average price for an NFT on Monday was around $ 1,256 – up from more than $ 4,000 at the end of February, according to market research website NonFungible.com. Data from The Block, another crypto research firm, shows a similar decline.
NFTs have been the center of an investment and pop culture craze for the past few weeks, which has led some to wonder if the frenzy is a market bubble fueled by the rich and younger traders who are being flushed with stimulus money.
See here: A JPEG file by digital artist Beeple was recently sold at Christie’s for $ 69 million. NFTs helped raise the price of sports trading cards, and rock group Kings of Leon released their most recent album as NFT. The digital tokens were even the subject of a recently released “Saturday Night Live” kit.
Is this just a quick retreat or has the phenomenon started? Time will tell – but even Beeple joked with CNN’s Julia Chatterley last month that he could be the biggest winner of a potential NFT bubble.
The latest economic outlook from the International Monetary Fund will be released at 8:30 am CET.
Tomorrow comes: The Reserve Bank of India announces its latest rate decision and Carnival reports the results