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Pre-market shares: Wall Street ignores risk of corporate tax hike


What’s happening: Biden’s $ 2 trillion infrastructure proposal, called the U.S. Jobs Plan, would raise the corporate tax rate to 28% from 21%. On Monday, Treasury Secretary Janet Yellen also called for a global minimum corporate tax to end a “race to the bottom” in which multinational companies record profits in countries with the most lenient tax systems.

“Together, we can use the global minimum tax to ensure that the global economy thrives, based on a more level playing field in the taxation of multinational corporations, and drives innovation, growth and prosperity. “Yellen said in a speech to the Chicago Council. on world affairs.

Such a policy can be expected to be aimed at scaring off equity investors, as higher taxes eat away at corporate profits. But Wall Street boomed higher on Monday. The Dow and the S&P 500 closed at record highs.

Strategists say investors are waiting for a better idea of ​​the dynamics that will shape the next tax debate before making decisions about their portfolios. But there is reason to believe that major reassessments may be needed.

In years when corporate and personal taxes were raised, stocks averaged 2.4% returns, according to Julian Emanuel, chief equities and derivatives strategist at BTIG. The following year, the average was -0.9%. This is compared to a long-term annual average of 7.7%.

Last summer, Dave Zion of the Zion research group released the numbers on how Biden’s tax could affect corporate profits. He estimated that S&P 500 companies could see their profits drop by as much as 10%.

Overview: We are still in the early stages of the debate on the tax proposals. But unless negotiations come to a complete halt, higher costs to business are coming – a fact that has yet to be fully appreciated by the markets.

Jeffrey Sacks, head of investment strategy in Europe, Middle East and Africa for Citi Private Bank and a member of the company’s Global Investment Committee, told me that investors have not reacted strongly due to ambiguity over details, including the timing of when higher taxes might go into effect.

The UK, which has announced plans to raise taxes on the country’s largest businesses, is a “leading indicator,” he noted. But the UK government has no plans to implement the increases until 2023, after the economic recovery from the pandemic has largely unfolded.

“We expect pretty much the same in the United States,” Sacks said.

Watch this space: The mood could change in the coming months, as investors shift from worrying about inflation to worrying about a new tax regime. Goldman Sachs noted that in 2017, when former President Donald Trump’s tax cuts were being debated, investors were pressured into action just a month before the bill was passed. The impact on the American markets was then felt until mid-2018.

Credit Suisse executives step down as bank takes huge blow for Archegos

The collapse of US hedge fund Archegos Capital last month cost Credit Suisse and two of the bank’s executives nearly $ 4.7 billion their jobs.

The Swiss bank said on Tuesday it was likely to report a pre-tax loss of 900 million Swiss francs ($ 959 million) for the first quarter of this year after taking on 4.4 billion francs Swiss (4.7 billion dollars) for the bankruptcy of Archegos.

Swiss credit (CS) said Brian Chin, his main investment banker, and Lara Warner, chief risk officer, will both be leaving the bank. The other members of the board will not receive a bonus for fiscal 2020 and the chairman of the board, Urs Rohner, will forgo 1.5 million Swiss francs ($ 1.6 million) in compensation.

Thomas Gottstein, who became CEO last year, will remain in his post.

“The large loss … related to the bankruptcy of a US-based hedge fund is unacceptable,” Gottstein said in a statement. “Serious lessons will be learned. Credit Suisse remains a great institution with a rich history.”

Credit Suisse has also announced that it will cut its dividend and suspend share buybacks.

Remember: Archegos imploded in March after using borrowed money to build massive positions in stocks, including media companies ViacomCBS and Discovery. Credit Suisse and Japan’s Nomura were among the main institutions exposed to losses.

This is not Credit Suisse’s only stumbling block in recent weeks. Earlier in March, it froze $ 10 billion in investment funds linked to UK supply chain finance firm Greensill Capital, which provided cash advances to companies whose clients owed money. .

Investor Outlook: Bank stocks have soared this year on expectations of a robust economic recovery. But not Credit Suisse. The Swiss bank’s stock is down more than 10% in 2021, while its competitor UBS has jumped 21%. The KBW Bank Index, which tracks US lenders, rose about 25%.

Is the NFT bubble already bursting?

Non-fungible tokens, or NFTs, have been all the rage. But their popularity may have already peaked.

Prices for NFTs, the digital certificates that have taken the art and collectibles world by storm, have fallen about 70% from their February high, reports my CNN Business colleague Paul A. La Monica.

The average price of an NFT on Monday was around $ 1,256 – up from more than $ 4,000 at the end of February, according to market research site NonFungible.com. Data from The Block, another crypto research firm, shows a similar drop.

NFTs have been at the center of an investment and pop culture mania in recent weeks, leading some to question whether the frenzy is a market bubble fueled by wealthy and younger traders brimming with cash. stimulus.

See here: A JPEG file of digital artist Beeple recently sold for $ 69 million at Christie’s. The NFTs helped raise the price of sports collectible cards and rock band Kings of Leon released their latest album as NFT. Digital tokens were even the subject of a recent “Saturday Night Live” skit.

Is it just a quick setback or has the phenomenon run its course? Time will tell – but even Beeple joked with CNN’s Julia Chatterley last month that he could be the biggest winner in a potential NFT bubble.

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