Volatile.

That is the take away from last week.

We started the week with Bitcoin weakness, falling from the high of $64,869 the weekend before last.

Then, we had the tax proposal from Biden. The focus was in the capital gains tax proposed. While it is not official yet, according to a Bloomberg report, the capital gains tax would increase from 20% to 39.6% for people earning more than $1 Million.

We have been warned by Biden that he would be looking to raise taxes on the wealthy. So, it should not have come as a surprise.

I guess the size of the increase gave the market a scare, and it was led to believe that people were liquidating their positions before the taxes came into reality.

This news sent the market into risk off mode.

Then, Friday’s data releases came.

According to Reuters, IHS Markit’s flash US Manufacturing PMI increased to 60.6 in the first half of this month, the highest since May 2007.

The commerce department said on Friday that new home sales surged 20.7% to a seasonally adjusted annual rate if 1.021 million units last month. Economist polled by Reuters forecasted 886,000 units.

The data sent the market back into risk on mode, completely erasing the losses from days before.

Volatile.

This week may be no different, with 1/3 of S&P 500 earnings including Apple, Microsoft, Amazon, Facebook, and Alphabet to be released. So far, earnings have been positive, and it is most likely to continue to be positive.

We also have a Fed meeting. Although we are not expecting any changes, Powell’s comments post meeting could sway markets.

Biden’s official tax plan is expected to be released midweek.

We also have GDP data on Thursday, personal income, and consumption on Friday.
These could also sway markets.

And while still on the topic of volatility, the CBOE VIX Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market. This is derived from real-time, mid-quote prices of S&P 500® Index (SPX℠) call and put options.

On Friday, the index closed at 17.33 down 7.38% from previous close.
The move downwards in the VIX suggests that markets are somewhat stabilising, and are expected to be less volatile.

So, the question remains: do we still buy the dips? It worked well for us last week.
With markets keen to put on risk at any sign of good news, it is hard to fight said trend.

Source: Bloomberg, Reuters, CBOE.

This commentary was written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.

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