Dow advanced 373 (near session highs), advancers over decliners 3-2 & NAZ climbed 225. The MLP index dropped 2 to the 166s & the REIT index was fractionally higher to 409. Junk bond funds fluctuated & Treasuries continued to be sold. Oil sold off 2+ to the 58s & gold was off 1 to 1727 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Pres Biden last week rolled out a $2.25T spending proposal that his administration is pitching as a once-in-a-generation investment that will create the “strongest, most resilient, innovative economy in the world." But a new study suggests the proposed tax hikes included in the American Jobs Plan could ultimately cause more damage to the economy, outweighing the benefits of the multibillion-$ initiative. The 8-year plan will make massive investments in the nation's roads & bridges, as well as transit systems, schools & hospitals. It will be funded by raising the corp tax rate to 28% from 21% – rolling back part of former Pres Trump's 2017 tax cuts – & by increasing the global minimum tax on US corps to 21% from 13%. "Raising taxes will not slow the economy at all," Biden said Fri. "We're asking corporate America to pay their fair share. It will not slow the economy at all." But according to an analysis of Congressional Budget Office data published by the Tax Foundation, a center-right think tank, federal investments only deliver ½ the economic as private-sector investments -- roughly 5% versus 10%. A $ of federal spending results in only about 67¢ of actual investment because state, local & private sector entities reduce their spending in response. Essentially, a $100M federal investment would boost the GDP, the broadest measure of goods & services produced in the country, by about $5M, whereas the same private investment would increase it by $10M. By that metric, the $2.25T in gov spending backed by Biden will result in just $1.3T in actual investment, 1/3 less than the headline amount. "Since $1 in government investment delivers only half of the returns of $1 in private investment, the economy would be better off if the $2 trillion in taxes that President Biden wants to finance his package were left in the hands of the private sector," the Tax Foundation added. There are 3 ways of offsetting the cost of federal spending: Increased borrowing, raising taxes or reducing other spending in the budget. The only option that does not lead to negative economic consequences is reducing spending in other areas. The Biden administration has "chosen the most economically harmful method of financing infrastructure spending," the study said, by pitching nearly $2T in tax increases. "Federal investment financed by debt or taxes could do more economic harm than good because federal borrowing and taxes crowd out private investment," the study added. "To avoid harming the economy, federal investments should be financed by cuts in other discretionary programs."
Economic damage from Biden tax hikes to outweigh benefits: study
Sen Joe Manchin said that he does not support Pres Biden's proposed tax increases on corps as part of a nearly $2.3T spending proposal, potentially dealing a fatal blow to a key revenue raiser included in the infrastructure initiative. Biden's plan would raise the corp tax rate to 28% from 21% & increase the global minimum tax on US companies to 21% from about 13%. The White House said the tax increases would pay for the proposed investments in the nation's roads & bridges, transit systems, schools & hospitals over the course of 15 years. But Manchin — a moderate Dem who has become one of the most powerful members of the 50-50 Senate — said that 28% is too high & could hurt American competitiveness. He suggested the package could be paid for by boosting the corp rate to 25% & closing tax loopholes used by wealthy Americans to dodge taxes. "As this bill exists today, it needs to be changed," he added. "Bottom line is, that's what legislation is all about. This bill will not be in the same form you've seen introduced or seen people talking about." Reps have widely rejected the sweeping economic package, meaning that Dems will almost certainly have to pass the measure via budget reconciliation, the obscure Senate rule the party used last month to approve Biden's $1.9T American Rescue Plan without a single GOP vote. With narrow majorities in the House & Senate, Dems will need to secure the support of almost every member in their party to muscle thru the package.
Key Democratic senator rejects Biden tax hike to finance $2T spending plan
Gold futures posted a slight gain, with weakness in the $ helping the metal stretch its streak of daily gains to a 3rd straight session. A rise in the stock market, however,
undercut some appetite for the haven metal after a report on Good
Friday showed a seasonally adjusted 916K jobs added in Mar, marking the best gain since Aug. The most-active Jun gold contract acked on pennies to settle at $1728 an ounce. Prices gained nearly 0.8% Thurs, but lost a smidgen for the holiday-shortened week. On Wed, gold posted a monthly loss of 0.8%. A survey of business leaders at service-oriented firms such as banks, retailers and restaurants
jumped to 63.7% last month from 55.3% in Feb, the Institute for
Supply Management said, the highest level on record since
the ISM began the survey in 1997. Separately, the Commerce Dept reported that US factory orders fell 0.8% in Feb — the first decline in 10 months.Markets in Europe were closed in observance of Easter Monday & US markets, which had been closed for Good Friday, moved higher in reaction to the Fri jobs report, limiting any price gains for haven gold.
Gold posts a slight gain, but stock market strength limits the rise
Treasury yields retreated, as investors looked past another round of improving economic data from the pandemic-battered services sector amid questions whether traders who wagered on rate hikes were over their skis. The 10-year Treasury note yield was at 1.706%, down from 1.721% on last Fri. The 2-year note yield fell 1.6 basis points to 0.168%, while the 30-year bond yield rose 0.7 basis point to 2.371%. In economic data out today, the Institute for Supply Management’s services index provided a glimpse of how restaurants, hotels & other leisure sectors are recovering from the pandemic. The data shows services businesses are coming back after being dealt blows by the work-from-home & social distancing guidelines that arose from the COVID-19 pandemic. Traders appeared to shrug off the positive economic data, which had been mostly anticipated, as more analysts pointed out traders may have baked in too many rate hikes ahead of schedule. Market participants are pricing in expectations for the Federal Reserve to lift rates by the end of 2022. But the majority of Fed officials don't see a benchmark interest rate increase until after 2023, based on the Fed's dot plot.
U.S. Treasury yields pull back as rate-hike bets ease
The large service side of the US economy surged in Mar as govs lifted businesses restrictions & rising vaccinations gave Americans more confidence to go out & shop, travel or take a vacation. A survey of business leaders at service-oriented firms such as banks, retailers & restaurants jumped to 63.7% last month from 55.3% in Feb, the Institute for Supply Management said. That's the highest level on record since the ISM began the survey in 1997. It doesn't mean service-oriented companies are doing better than ever, just that the improvement between Feb & Mar was especially strong. Readings above 50% signal that businesses are expanding & numbers above 55% are a sign of broad strength. A similar ISM survey of manufacturers also showed great strength in Mar as it posted a 38-year high. All 18 services industries tracked by the ISM expanded in Mar — a rarity even in the best of times. New orders & production made big leaps as each index also hit the highest levels on record. The gauge measuring new orders skyrocketed to 67.2% last month from 51.9% in Feb, when a bout of unusually severe winter weather in states such as Texas sapped the economy. The production index also climbed nearly 14 points to 69.4%. Employment also accelerated. The employment barometer jumped to 57.2% from 52.7% & reached a nearly 2-year peak. The economy is catching fire again as coronavirus cases decline, the weather warms, federal stimulus floods into the economy. The US added the most jobs in Mar since last fall & hiring is likely to strong in the months ahead so long as the coronavirus is kept at bay.
U.S. service economy surges in March as vaccinations rise and restrictions are lifted
Oil futures settled with a loss of more than 4%, with weakness attributed to concerns over the decision by OPEC & its allies (OPEC+) to ease output curbs & indications of more supply from Iran is making its way to market. West Texas Intermediate (WTI) crude for May fell $2.80 (4.6%) to settle at $58.65 a barrel. Jun Brent crude, the global benchmark, lost $2.71 (4.2%) at $62.15 a barrel. Based on the front months, both crude benchmarks suffered their lowest settlements since Mar 25. Crude rallied over 3% Thurs after OPEC+ said it had agreed to allow oil production to rise by 350K barrels in May, 350K barrels in Jun & by 441K barrels in Jul, with Saudi Arabia gradually rolling back a voluntary cut of 1M barrels a day that had been in place since Jan. The rally left WTI up 0.8% for the week, while Brent rose 0.7%. Oil futures were closed for the Good Friday holiday. Baker Hughes on Thurs reported that the number of active US oil drilling rigs climbed by 13 to 337 for the week, pointing production increases ahead. Analysts said the rise in OPEC+ output combined with concerns over Chinese import demand may be factors in today's weakness. A report said that the People's Bank of China had instructed foreign & domestic lenders to keep loan growth in Q1 at roughly the same level as last year, if not lower.
Oil prices drop 4% on bets for higher supplies and weaker energy demand
The economy is doing reasonably well (under the circumstances), aided by the vaccinations. However, that reduces the need for another massive stimulus bill filled with tons of pork that will be spread out over several years. In addition, higher taxes are always a worry. The modest advance decline ratio implies investors are not embracing buying stocks as much as the strength in the popular averages suggests.
Dow Jones Industrials
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