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Stocks Sink on Report Biden Seeks Higher Capital Gains Tax on Wealthy

Stocks end sharply lower following a report that says President Joe Biden would propose a capital-gains tax of more than 40% for the wealthy.

Stocks finished sharply lower Thursday following a report that said President Joe Biden would propose a capital-gains tax of more than 40% for the wealthy.

The Dow Jones Industrial Average finished down 321 points, or 0.94%, to 33,815, the S&P 500 dropped 0.92% and the Nasdaq declined 0.94%.

Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%, and when coupled with a current surtax on investment income, that means federal tax rates for investors could be as high as 43.4%, Bloomberg reported, citing people familiar with the proposal. 

The president's plan would lift the capital gains rate to 39.6% for those earning $1 million or more, an increase from the current base rate of 20%, the people told Bloomberg.

Louis Navellier, chief investment officer at Navellier & Associates, said he expected the president's plan to increase the capital gain tax rate to 39.6% to fail. 

"A more modest proposal to raise long-term capital gains and qualified dividend tax rates from 20% to 28% would be much more likely to pass the Senate," Navellier said.

Stocks had traded mixed for most of Thursday's session after jobless claims fell to a pandemic low but concern about a resurgence in coronavirus cases persisted.

The number of Americans applying for first-time unemployment benefits fell by 39,000 to 547,000 in the latest week, a sign the labor market has been strengthening. Economists had predicted 610,000 claims. 

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"This week’s unemployment insurance claims report highlights further labor market improvement," said Indeed Hiring Lab economist AnnElizabeth Konkel. 

Sales of previously owned homes slowed in March to a seasonally adjusted annual pace of 6.01 million, a seven-month low.

In corporate news, AT&T  (T) - Get AT&T Inc. Report posted first-quarter adjusted earnings and revenue that topped Wall Street forecasts as the company's HBO Max streaming service added more subscribers and wireless additions trounced estimates. The shares finished 4.2% at $31.36.

American Airlines  (AAL) - Get American Airlines Group Inc. Report reported a modestly wider-than-expected first-quarter loss but noted that improved booking trends will support liquidity as carriers look to exit the travel-related impact of the pandemic. The stock fell 4.5% to $20.07.

Stocks finished higher Wednesday, snapping a two-day losing streak. The Nasdaq posted a sharp 1.19% gain, shaking off a tumble in Netflix  (NFLX) - Get Netflix Inc. Report following a subscribers miss for the streaming giant.

Roughly 80 companies in the S&P 500 have reported or are scheduled to post earnings this week. So far, 85% of the companies that issued reports have topped Wall Street estimates, according to FactSet.

Wall Street analysts expect an increase in earnings of more than 24% for companies in the S&P 500 during the first-quarter season.

As for the pandemic, COVID-19 infections have been increasing in major economies such as Brazil and India. 

According to a report in The New York Times, India recorded 312,731 new infections in a 24-hour period, the highest daily coronavirus case count in a single country since the pandemic began more than a year ago.