This week, Madison Business Review contributor Bryce Roth provides a recap of what happened in the business world and stock markets.
The three main indices — the S&P 500, Nasdaq Composite (NASDAQ) and Dow Jones Industrial Average (DJIA) — were all down last week as inflation fears, potential tax hikes and supply chain issues all made headlines.
Consumer Price Index (CPI) increased 5.3% year-over-year (YoY) and 0.3% month-over-month (MoM). Core CPI — which doesn’t include inflation in food and energy sectors — increased 4% YoY and 0.1% MoM.
These numbers remain above the usual 2% inflation goal, potentially fueled by the amount of government stimulus that’s been approved. Meanwhile, the energy sector rose 3.53% while materials dropped 3.03%.
Corporate Tax Hike
Recently, Democrats have proposed a corporate tax hike. If the proposal is to pass, income between $400,000 and $5 million would be taxed at 21%, and a 26.5% tax rate would apply to income above $5 million. The top individual income tax rate would rise from 37% to 39.6%.
Additionally, according to CNBC, “the first $400,000 in income would be taxed at an 18% rate.”
The S&P 500 reacted negatively to this new but only dropped roughly 1%. Future predictions aren’t positive either: Goldman Sachs expects a 5% drop in 2022 earnings if this proposal passes.
For now, as this proposition continues to be in the works, it seems the immediate impact may not be too drastic — S&P 500 companies rarely pay the top tax rate anyway.
Debt and more debt
World debt in the last three months has increased by about $4.8 trillion, rising to nearly $300 trillion in total. Quoted by Bloomberg, the Director of Sustainability Research at the Institute of International Finance Emre Tiftik wrote, “the recovery has not been strong enough to bring debt ratios below pre-pandemic levels in most cases.”
Excluding China, $36 trillion of debt has come from emerging markets, a result of heavy government borrowing.
Debt coming from households, non-financial corporates and governments have all drastically increased by trillions since the beginning of the pandemic. World debt-to-GDP stands at an alarming 365%.
While economies have been reopening and economic activity has increased drastically in the past year and a half, the issuance of bonds and loans is estimated to keep rising into 2022.
Fed Ethics Review
The Federal Reserve’s Chairman Jerome Powell has elected to review the Fed’s statement of ethics after news broke that senior central bank officials made millions in 2020 stock trades.
According to CNBC, some officials, like Senator Elizabeth Warren, are calling for stricter regulation on their stock trading, while others are hoping for no option to trade at all. The Fed is meant to act as a neutral institution charged with maintaining the U.S. economy; individual stock trading opens the doors for scrutiny and trust issues.
Commercial space travel shoots off
Elon Musk’s SpaceX recently launched the first all-civilian trip to space. The crew was called Inspiration4 and consisted of four individuals privately funding the journey.
A CBS article quotes Todd Ericson, an Inspiration4 mission director, who said, "I really believe this mission will be looked at as the first mission at the opening of really the second space age, where space travel becomes much more accessible to average men and women across the world.”
Funded by the Billionaire Jared Isaacman, the price is estimated to have been around $200 million. Though expensive, missions like these pave the way for future commercial space travel to become a more common occurrence, building a profitable market for companies to take advantage of.
Bryce Roth is a senior finance major. Contact Bryce at rothbc@dukes.jmu.edu.
Disclaimer: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I’m not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.