North American stock markets recover from tax-hike fears, end week near record closes

·4 min read

TORONTO — Investors shook off U.S. tax hike concerns as strong economic data pushed North American stock markets to end the week hovering around record territory.

Markets were rattled Thursday following a report that U.S. President Joe Biden is planning to nearly double the capital gains tax on wealthier Americans.

Investors earning US$1 million or more would reportedly have to pay a 39.6 per cent tax rate on any capital gains, nearly double the current rate for Americans in that income bracket. A separate surtax on investment income could boost the overall federal tax rate for wealthy investors as high as 43.3 per cent.

On Friday, markets likely viewed that as a trial balloon and recovered losses, said Colin Cieszynski, chief market strategist at SIA Wealth Management.

"There's no guarantee you'd get enough support within your own party to be able to push that through and considering the razor-thin margins they have in Congress, I think the markets are probably figuring that this might be a tough sell," he said in an interview.

Cieszynski said investors realized that any such tax increases wouldn't come quickly and that a political fight could delay enactment for a year.

In addition, a UBS report said U.S. taxable domestic investors own only about a quarter of the U.S. stock market with the rest, including retirement accounts, not subject to capital gains taxes.

"There's a lot of retirement accounts and institutional accounts and other such things. That would only impact a fairly small group of investors," Cieszynski said of the tax hike.

The S&P/TSX composite index closed up 70.69 points to 19,102.33. That was 1.3 per cent lower than last Friday's record high but up 9.6 per cent so far in 2021.

In New York, the Dow Jones industrial average was up 227.59 points at 34,043.49. The S&P 500 index was up 45.19 points to 4,180.17 after reaching a record intraday high of 4,194.17, while the Nasdaq composite was up 198.40 points at 14,016.81.

Investors were buoyed by economic data that continues to be strong. U.S. manufacturing PMI data increased to 62.2 in April, up from 59.7 in March to the highest level since data collection began in October 2009. Services PMI also increased.

Meanwhile, new U.S. home sales increased in March to the fastest pace since 2006.

"So fantastic economic data I think is definitely shoring up the market," said Cieszynski.

"The taxes thing turned out to be just a hiccup. I think people are still anticipating that the vaccine rollout will likely continue one way or another and the economy is heading towards reopening."

The Canadian dollar moved further above 80 cents US, trading for 80.07 cents US compared with 80.00 cents US on Thursday.

The TSX was led by health care with shares of cannabis producers Organigram Holdings Inc. up 4.5 per cent and Aurora Cannabis Inc. up four per cent.

The heavyweight financials sector followed, with Bank of Montreal and Toronto-Dominion Bank each up 1.8 per cent.

Energy got a lift from an increase in the price of crude oil. West-Texas Intermediate was up 1.9 per cent for the week and nearly 28 per cent so far in 2021.

The June crude oil contract was up 71 cents at US$62.14 per barrel and the June natural gas contract was down 1.3 cents at US$2.82 per mmBTU.

Enerplus Corp. gained 1.9 per cent while Imperial Oil was up 1.7 per cent and Tourmaline Oil Corp. rose 1.4 per cent.

Materials dipped on lower gold prices with Kinross Gold Corp. off 2.9 per cent and New Gold Inc. down 2.8 per cent.

The June gold contract was down US$4.20 at US$1,777.80 an ounce and the May copper contract was up 6.3 cents at nearly US$4.34 a pound.

This report by The Canadian Press was first published April 23, 2021.

Companies in this story: (TSX:NGD, TSX:K, TSX:ERF, TSX:IMO, TSX:TOU, TSX:OGI, TSX:ACB, TSX:BMO, TSX:TD, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press