FED MEETING CONCLUDES WEDNESDAY;  A 44.6% CAPITAL GAINS RATE PROPOSED BY THE ADMINISTRATION

A Bloomberg headline Friday read “AI Craze Powers Best Week in 2024 for Stocks.” The earnings induced surge in both MSFT and GOOG coupled with an inflation report that largely met expectations was the catalyst for Friday’s advance.
The monetary policy narrative has radically changed with the markets now “reasonably assuming one interest rate cut, maybe two cuts in 2024.” Ten weeks ago, six or seven interest rates were all but a given, a major reason for the five month surge in equities, especially mega sized tech companies.
The narrative is now about earnings growth, earnings growth that may offset the negatives of a higher cost of funds and risk-free benchmark rate utilized for equity valuations.
Speaking of interest rates, a FOMC concludes Wednesday. No change in monetary policy is expected. The Committee is not expected to release a new “dot plot” or the infamous survey where members think the overnight rate may be at certain periods of time.
However, every Fed meeting could be of significance. While most believe the Committee has not altered its position, all will closely scrutinize all statements.
Changing topics, according to a report issued by the Treasury Department, the President’s proposed fiscal 2025 budget would increase the top marginal rate on long term capital gains and qualified dividends to a staggering 44.6%. A capital gains tax hike of that magnitude would take the rate to its level since it was first introduced in the early 1920s according to newswires.
Treasury Secretary Yellen is advocating for this top rate, a rate that many believe will crush any type of investment or risk taking. Economics 101 dictates the more something is taxed, the less that is produced.
Little attention has been focused on this proposal given the slim likelihood of passage but indicates how economically progressive this Administration has become.
An income tax rate at this level will greatly affect valuations. Another variable must dramatically improve to offset the negatives of such taxation to maintain current valuations.
The economic calendar is comprised of many top tier events. There is the a-for-mentioned FOMC meeting, both ISM Manufacturing and Services data, a sentiment survey various employment statistics including the JOLTS Job Openings and the BLS labor report.
How will the data be interpreted?
Last night the foreign markets were up. London was up 0.50%, Paris up 0.08% and Frankfurt up 0.01%. Chian was up 0.79%, Japan up 0.81% and Hang Seng up 0.54%.
Futures are flat ahead of a significant week in economic statistics and a FOMC meeting. Last week earnings from several of the mega caps exceeded expectations and this week both AMZN and AAPL post results. The 10-year is up 9/32 to yield 4.63%.