Stocks open flat, head for losing week on higher tax fears

U.S. stocks were flat on Friday as investors prepared to end a down week for equities amid concerns the White House could seek a hike to the capital gains tax.

The S&P 500 rose just 0.1%, while the tech-heavy Nasdaq Composite climbed 0.4%. The Dow Jones Industrial Average fell 70 points amid a decline in American Express and Intel shares.

Intel shares dropped more than 5% after it issued second-quarter earnings guidance below analysts’ hopes. American Express fell over 4% after the credit card company reported quarterly revenue that was slightly short of forecasts. 

Wall Street came off a turbulent session for equities after multiple news outlets reported Thursday afternoon that President Joe Biden is slated to propose much higher capital gains taxes for the rich.

Bloomberg News reported that Biden is planning a capital gains tax hike to as high as 43.4% for wealthy Americans.

The proposal would hike the capital gains rate to 39.6% for those earning $1 million or more, up from 20% currently, according to Bloomberg News, citing people familiar with the matter. Reuters and the New York Times later also reported similar stories.

“We expect Congress will pass a scaled back version of this tax increase,” wrote Goldman Sachs economists in a note. “We expect Congress will settle on a more modest increase, potentially around 28%.”

Week to date, the S&P 500, Dow and Nasdaq are down 1.2%, 1.1% and 1.6%, respectively.

Snap shares, meanwhile, jumped 9% after it said it saw accelerating revenue growth and strong user numbers during the first quarter. Snap broke even on the bottom line while posting revenue of $770 million.

Corporations have for the most part managed to beat Wall Street’s forecasts thus far into earnings season. Still, strong first-quarter results have been met with a more tepid response from investors, who have not, to date, snapped up shares of companies with some of the best results.

Strategists say already-high valuations and near-record-high levels on the S&P 500 and Dow have kept traders’ enthusiasm in check. But indexes are within 1.5% of their all-time highs even after Thursday’s losses.

Bitcoin plunged overnight, perhaps in part because of concerns about higher capital gains taxes, with the cryptocurrency last down about 8%, according to CoinMetrics. Other cryptocurrencies like Ethereum were also getting hit. So far, the sell-off there was not spilling over into other risk assets like equities.