Taxes and inflation will be key themes for markets in the week ahead

Traders on the floor of the New York Stock Exchange.

Source: NYSE

The final week of April is going to be a busy one for markets with a Federal Reserve meeting and a deluge of earnings news.

Hot topics in markets will continue to be inflation and taxes.

President Joe Biden is expected to detail his “American Families Plan” and the tax increases to pay for it, including a much higher capital gains tax for the wealthy. The plan is the second part of his Build Back Better agenda and will include new spending proposals aimed at helping families. The president addresses a joint session of Congress Wednesday evening.

It’s a huge week for earnings with about a third of the S&P 500 reporting, including Big Tech names, such as Apple, Microsoft, Alphabet and Amazon.

As many have already done, firms like Boeing, Ford, Caterpillar and McDonald’s, are likely to detail cost pressures they are facing from rising materials and transportation costs and supply chain disruptions.

At the same time, the Fed is expected to defend its policy of letting inflation run hot, while assuring markets it sees the pick-up in prices as only temporary. The central bank meets on Tuesday and Wednesday.

The central bank takes the main stage

The S&P 500 was down 0.1%, ending the week at 4,180, while Nasdaq Composite was down nearly 0.3% at 14,016. The Dow was off just shy of 0.5% at 34,043.

Tax hike prospects

“I think a lot of people are starting to price in the risk there going to be a significant increase in both corporate and capital gains taxes,” said Lyngen.

So far, companies have not provided much in the way of commentary on the proposed hike in corporate taxes to 28% from 21% but they have been talking about other costs.

David Bianco, chief investment strategist for the Americas at DWS, said he expects larger companies will do better dealing with supply chain constraints than smaller ones. Big Tech is also likely to fare better during the semiconductor shortage than auto makers, which have already announced production shutdowns, he said.

“Next week is tech week. I think we’re going to get down on our knees and just be in awe of their business models and their ability to grow at a behemoth scale,” Bianco said.

He said he’s not in favor of Wall Street’s popular trade into cyclicals and out of growth. He still favors growth.

“We’re overweight equities really because we’re concerned about rising interest rates,” Bianco said. “I’m not bullish in that I expect the market to rise that much from here.”

“We stuck with growth and dug deeper into bond substitutes, utilities, staples, real estate,” he said, adding he is underweight industrials, energy and materials. “Energy is doomed. It’s being nationalized via regulation. I do like industrials, they are well-run companies, but I do think infrastructure spending expectations for classic infrastructure are too high.”

He also said industrials are good businesses, but the stocks have become overvalued.

Bianco said he likes big box stores, but smaller retailers are facing big challenges that were already impacting them prior to Covid. He also finds small biotech firms attractive.

“I like healthcare stocks. Those valuations are reasonable. People have been paranoid about politicians beating on them since 1992. They manage through it and lately they’ve been delivering,” he said.

Week ahead calendar

Monday

Earnings: Tesla, Canadian National Railway, Canon, Check Point Software, Otis Worldwide, Vale, Ameriprise, NXP Semiconductor, Albertsons, Royal Phillips

8:30 a.m. Durable goods

Tuesday

FOMC begins two day meeting

Earnings: Microsoft, Alphabet, Visa, Amgen, Advanced Micro Devices, 3M, General Electric, Eli Lilly, Hasbro, United Parcel Service, BP, Novartis, JetBlue, Pultegroup, Archer Daniels Midland, Waste Management, Starbucks, Texas Instrument, Chubb, Mondelez, FireEye, Corning, Raytheon

9:00 a.m. S&P/Case-Shiller

9:00 a.m. FHFA home prices

10:00 a.m. Consumer confidence

10:00 a.m. Housing vacancies

Wednesday

Earnings: Apple, Boeing, Facebook, Qualcomm, Ford, MGM Resorts, Humana, Norfolk Southern, General Dynamics, Boston Scientific, eBay, Samsung Electronics, GlaxoSmithKline, Yum Brands, SiriusXM, Aflac, Cheesecake Factory, Community Health System, CIT Group, Entergy, CME Group, Hess, Ryder System

8:30 a.m. Advance economic indicators

2:00 p.m. Fed statement

2:30 p.m. Fed Chairman Jerome Powell briefing

Thursday

Earnings: Amazon, Caterpillar, McDonald’s, Twitter, Bristol-Myers Squibb, Comcast, Merck, Northrop Grumman, Airbus, Kraft Heinz, Intercontinental Exchange, Mastercard, Gilead Sciences, U.S. Steel, Cirrus Logic, Texas Roadhouse, Cabot Oil, PG&E, Royal Dutch Shell, Church & Dwight, Carlyle Group, Southern Co.

8:30 a.m. Initial jobless claims

8:30 a.m. Real GDP Q1

10:00 a.m. Pending home sales

Friday

Earnings: ExxonMobil, Chevron, Colgate-Palmolive, AstraZeneca, Clorox, Barclays, AbbVie, BNP Paribas, Weyerhaeuser, Illinois Tool Works, CBOE Global Markets, Lazard, Newell Brands, Aon, LyondellBasell, Pitney Bowes, Phillips 66, Charter Communications

8:30 a.m. Personal income and spending

8:30 a.m. Employment cost index Q1

9:45 a.m. Chicago PMI

10:00 a.m. Consumer sentiment

Saturday

Earnings: Berkshire Hathaway



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