Dow Jones futures rose slightly Friday morning, along with S&P 500 futures and Nasdaq futures, while the Bitcoin price plunged below $50,000 overnight. Intel stock, Snap (SNAP) and Apple supplier Skyworks Solutions (SWKS) were key movers on news.
XThe stock market rally reversed lower Thursday on widespread reports that President Joe Biden will propose nearly doubling the top capital gains rate on the wealthy to 43.4%.
While the negative reversal is never good to see, the Dow Jones, S&P 500 and Nasdaq didn't suffer too much damage from the Biden capital gains tax hike plan. However, the Bitcoin price continued to retreat from record highs overnight. The cryptocurrency was paring losses Friday morning, moving back to $50,000.
Intel (INTC), Snapchat parent Snap, Mattel (MAT) and BJ's Restaurants (BJRI) headlined key earnings reports after hours. Apple (AAPL) supplier Skyworks bought a Silicon Labs (SLAB) division to expand deeper into automotive chips.
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Intel, Snap Earnings Movers
Snap, Intel, Mattel and BJ's Restaurants all beat earnings views.
Intel stock fell 2% before Friday's open, amid weak data center chip sales and mixed Q2 guidance. Shares declined 1.8% to 62.57 on Thursday, undercutting the 50-day line.
Snap stock rallied 5% overnight, signaling a move back above its 50-day line. Shares fell 2.1% to 57.09 on Thursday. Snap stock has a 65.96 cup-with-handle base buy point. Pinterest (PINS), Facebook (FB) and Twitter (TWTR) all climbed slightly overnight. FB stock dipped just below a buy point Thursday while PINS and TWTR are consolidating but are currently below their 50-day lines. All three social giants report earnings next week.
Mattel stock jumped 6% in premarket trade. The could push MAT stock over a 21.97 flat-base entry. Shares closed up 0.1% to 20.88. Mattel stock has been finding support at its 50-day line for several weeks.
BJ's stock climbed 3% in extended action. Shares of the pizza and brew pub chain rose 2.1% to 60.42 on Thursday, rebounding from the 21-day and 50-day lines. BJ's stock has a 63.52 flat-base buy point, but could have an early entry with a positive post-earnings move.
Skyworks Buys Silicon Labs Unit
Skyworks stock popped 4% to 191 while SLAB stock surged 18% to 170.55. Late Thursday, Skyworks agreed to buy Silicon Labs' Infrastructure & Automotive business for $2.75 billion cash, deepening its exposure to autos and especially electric vehicles. Skyworks has primarily been a wireless chip maker and a key Apple iPhone supplier. But the auto chip business is a fast-growing business.
SWKS stock has a 194.59 handle buy point. Skyworks closed down 1.7% to 183.42, but found support at its 50-day line.
SLAB stock has a 163.53 buy point, but a gap above the 50-day line and a trend line could offer an early entry Friday. Shares fell 2.2% to 144.65 on Thursday.
As for Apple stock, shares fell 1.2% to 131.94 on Thursday. AAPL stock has a 145.09 cup-base buy point, but is working on a possible handle or three-weeks-tight, or perhaps both.
Apple, Skyworks and Silicon Labs all report earnings next week.
Bitcoin Price Breaks, Reclaims $50,000
Early Friday, Bitcoin traded just right around $50,000, still down sharply from a day earlier. Overnight the Bitcoin price tumbled below $48,000 to its lowest levels since early March. Bitcoin peaked at $64,829 on April 14, hours before Coinbase (COIN) debuted on the NYSE. A Biden capital gains tax hike would affect Bitcoin and other cryptocurrencies, not just stocks.
Other digital assets, including Ethereum and Dogecoin, also tumbled.
COIN stock, Grayscale Bitcoin Trust (GBTC), Riot Blockchain (RIOT) and other Bitcoin-heavy plays are likely to keep plunging with Bitcoin.
The weakness also may weigh on Bitcoin-tied stocks such as Square (SQ), PayPal (PYPL) and, to a lesser extent, Tesla (TSLA), all of which have been setting up in bases. Square and PayPal retreated slightly before Friday's open, while Tesla was little changed.
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Dow Jones Futures Today
Dow Jones futures rose less than 0.1% vs. fair value, with American Express (AXP) falling on mixed results. S&P 500 futures advanced 0.2% and Nasdaq 100 futures climbed 0.2%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Coronavirus News
Coronavirus cases worldwide reached 145.45 million. Covid-19 deaths topped 3.08 million.
Coronavirus cases in the U.S. have hit 32.66 million, with deaths above 584,000.
Stock Market Rally Thursday
The stock market rally was enjoying solid gains when the Biden capital gains tax hike news came out. The major indexes quickly reversed lower, closing near the lows of the day.
The Dow Jones Industrial Average fell 0.9% in Thursday's stock market trading. The S&P 500 index and Nasdaq composite also lost 0.9%. The Russell 2000 dipped 0.4% after briefly regaining its 50-day line.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged up 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) edged down 0.15%. The VanEck Vectors Semiconductor ETF (SMH) retreated 2.2%, as Lam Research (LRCX) led a sector retreat despite seemingly strong earnings and guidance.
SPDR S&P Metals & Mining ETF (XME) dropped 1.65% and Global X U.S. Infrastructure Development ETF (PAVE) lost 0.9%. U.S. Global Jets ETF (JETS) retreated 1.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slid 0.3% and ARK Genomics ETF (ARKG) climbed 0.4%. Tesla stock is ARK Investments' top holding across its ETFs, with Square a top-five holding. ARK has been buying up COIN stock since it went public.
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Biden Capital Gains Tax Hike Plan
Stocks erased modest gains on the Biden capital gains tax plan, which would hike the rate on long-term investments from 20% to 39.6% for those earning $1 million or more. Along with a 3.8% surcharge to help fund ObamaCare, the top rate would be 43.4%.
The federal and state combined capital gains rate would often top 50%, including in New York and California.
The Biden capital gains tax proposal shouldn't have been a surprise. It's in line with what President Biden said during the 2020 campaign.
Some Wall Street strategists also expect an eventual plan to be watered down. The Biden capital gains tax hike plan wouldn't affect holdings in pension funds, retirement accounts and anyone who isn't a millionaire. So the share of stock sales subject to the higher tax would be relatively low.
The Biden plan would be only a modest tax hike on investments held less than one year, which are taxed at normal income tax rates. Those currently top out at 37%.
Still, a capital gains tax hike would make stocks less attractive. President Biden also has proposed hiking the corporate tax rate to 28% from the current 21%, though there are indications it might end up at 25%.
The public supports higher taxes on corporations and capital gains for the wealthy, according to the April IBD/TIPP Poll. By 54%-33%, Americans favor lifting the corporate income tax rate to 28%. By 65%-23%, they backed an unspecified capital gains tax hike for millionaire households, including 75% of self-described investors.
In the near term, a sharp capital gains tax hike could spur heavy selling by wealthy investors with long-term holdings. However, it's possible a capital gains tax hike would be retroactive to Jan. 1, 2021. If it is, that would make any tax-related selling this year irrelevant.
The Biden capital gains tax hike would help finance the president's third huge spending package, following the $1.9 trillion stimulus and a proposed $2.2 trillion package of infrastructure and more.
Investors bid up stocks in early 2021 in part due to massive fiscal stimulus. But tax hikes are part of that.
Market Rally Analysis
The Biden capital gains tax hike plan rained on what was looking to be a solid session. Still, the Dow Jones and S&P 500 remain near record highs and are now a little closer to their 50-day lines, after coming close to being extended in recent days. The Nasdaq is trading within its recent range. The Russell 2000 is still close to its 50-day line.
Some leading stocks, notably chip plays, took some losses Thursday. But much of that was related to earnings.
If the Biden tax plan is a one-off for the stock market rally, then Thursday's action is no big deal. If the indexes and leading stocks continue to weaken and break key support, that would be a different issue.
Sideways action for the stock market rally would be fine, and would let some more handles develop. Investors may not want to step up their exposure with hundreds of companies reporting next week, headlined by Apple, Facebook (FB), Google (GOOGL), Amazon.com (AMZN), Microsoft (MSFT), Tesla (TSLA) and Caterpillar (CAT).
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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