The coronavirus situation in the U.S. is a clear bright spot with several health experts believing the country is close to reaching so-called “herd immunity” and expect to soon see a dramatic drop in new coronavirus cases.
The good news is most people are getting back to normalcy and the economic activity is looking robust. That’s despite many businesses having a difficult time hiring help. As companies are having to offer higher and higher wages there is increasing worry about rising inflation. There is also more talk about the possible implications of looming tax hikes that are expected to pay for some of President Biden’s ambitious economic plans.
An investor note from Goldman Sachs warned that the planned corporate tax hike to 28% could decrease earnings for some of the mega-cap technology companies as much as -9% next year, while S&P 500 earnings overall could take an -8% hit.
The analysts also warned that the “FAAMG” stock complex (Facebook, Apple, Amazon, Microsoft and Google) could be at risk of a year-end selloff if the President’s capital gains tax hike is implemented.
These stocks account for nearly 30% of the S&P 500’s market cap gains over the last five years, meaning investors have earned close to $5 trillion over that time.
Investors may look to take some of those gains in 2021 to lock in the lower tax rate.
Some of the big money players and large funds have shifted to value and more traditional inflationary type plays. While the younger Robinhood and Wall Streets Bets crowd that was once pumping the high-flying tech sector are now looking at buying airline and concert tickets.
As always, you have to pay attention to money-flow and ask yourself who will provide the next round of big buying?
Today’s key economic data will be the Labor Department’s JOLTS report, which could provide a deeper look at what’s going on in the job market. Federal Reserve officials are also making the rounds today with at least five central bankers scheduled to speak, including Federal Reserve Governor Lael Brainard. Earnings on tap include Electronic Arts, Honda, Palantir, Toyota, and Vodafone
Continued Talk of Commodity Supercycle
The price of iron ore hit a record high on Monday in the latest sign of booming commodity markets, which have gone into overdrive in recent weeks as large economies recover from the pandemic. The steelmaking ingredient, an important source of income for the mining industry, rose 8.5 per cent to a record high of almost $230 a ton fueled by strong demand from China where mills have cranked up production. Other commodities also rose sharply, including copper. Keep in mind, in the past 12-months, corn and crude oil prices are up +95%, soybean oil up +125%, silver up +75%, lean hogs up +54%, cotton up +47%, sugar up +57%, lumber up +350%, stock market up +43%, Bitcoin up +215%.
Yesterday’s levels played very well. SP500 is trading in a bearish zone now. The upper range is 4156. Middle-strength levels within this zone – 4124, 4092 and 4060. Weal levels – 4140, 4108 and 4076. Neutral zone 4156 – 4221. Middle strength level – 4188.5. Weak levels – 4172.25 and 4204.75. Keep in mind SP500 is close to first daily support around 4100. In order to place a trade, always watch price action at mentioned levels. Once level turns into support/resistance, consider going long/short.