To the north on Thursday, Canada’s primary stock index finished with small advances. As a result, U.S. stock markets had a mixed performance amid fears that any tax cuts would add to the country’s burgeoning debt. The Dow Jones industrial average closed down, dropping by 1.35 points to end at 41,859.09. At the same time, the S&P 500 index fell 2.60 points, closing at 5,842.01. By comparison, the Nasdaq composite jumped 53.09 points, closing at 18,925.73.
Investors reacted to the ongoing discussions among Republicans aiming to make permanent the individual income and estate tax cuts originally enacted during the Trump administration. While these tax cuts were making headlines, many had expressed concern over their inflationary effects and their ability to add to national debt.
Allan Small, a well-respected market analyst, shared his worries about these advances.
“If the president can pass this … continuation of the Trump tax cuts, that’s going to be key. Not sure (the markets) like it too much because the tax cuts could be inflationary, add more debt to the mix, but we’ll have to see.” – Allan Small
This fear of tax cuts has already pushed yields in the bond market higher, creating a vicious cycle that’s even more spooked investors. At the same time, commodities were equally mixed Thursday. The June gold contract lost US$18.50 to settle at US$3,295 an ounce. This decline indicates reduced demand for safe-haven assets as risk sentiment in equity markets ebbs and flows.
The July copper contract had a minor loss of less than a penny on the day. At that rate, it would be trading at US$4.68 per pound. The energy sector really took a hit. The price of West Texas Intermediate crude oil for July delivery was down 37 cents to US$61.20/bbl, and the July contract for natural gas was down 10 cents to US$3.64 per mmBTU.
In Canada, the loonie was trading at 72.10 cents US, down from 72.21 cents US on Wednesday. This significant decline in value mirrors larger market trends and economic uncertainties impacting both countries.
Corporate news made headlines when one of the biggest banks heartlessly laid off two percent of their workforce. This decision was made despite the bank’s double-digit profit growth. The bank’s third quarter profit soared to a record $11.1 billion, or $6.27 per diluted share. That’s a huge increase over last year’s $2.6 billion, or $1.35 per diluted share, in the same quarter. Allan Small commented on the bank’s performance, stating:
“Trading revenues were up, their restructuring in the U.S. is going well from that money laundering situation.” – Allan Small
While investors continue to process these advances, sentiment in the capital markets is still generally wary. Worries about inflation and the deficit are at a fever pitch. As a result, market participants are hanging intently in the balance policy decisions and how these decisions will impact domestic and foreign markets.
