Market Snapshot: S&P 500 closes at record high as investors assess strong earnings, tax battle in Congress

What drove the market?

A good start to third-quarter earnings season has helped investors put the nervousness of September behind them, even as concerns over inflation, COVID-19 and China’s economy still linger.

Of the approximately 70 S&P 500 companies that have reported results so far, 86% posted earnings that topped analysts expectations, according to Refinitiv.

That optimism appears to be spreading, said Baird’s Michael Antonelli, as investors begin to embrace a fading pandemic, a strong economy moving into yet another solid earnings season, a correction in the rearview mirror and that stocks usually perform best in the fourth quarter.

Antonelli, a market strategist, was even sanguine about inflation.

“They are talking about supply chain issues and logistics on the Today Show. Meanwhile the ports are opening 24/7, the rails are running 24/7, and once we get trucking sorted out supply chains will unclog,” he said. “We just can’t look at inflation right now without acknowledging the bottlenecks.”

Investors also monitored developments around President Joe Biden’s proposed spending bills, after The Wall Street Journal reported Wednesday that Democratic Senator Kyrsten Sinema of Arizona would oppose any increases in the tax rates for businesses, the rich or capital gains.

“The idea of no significant [tax] rate hikes could be a positive for the stock market, which has worried about the impact of a rate increase from 21% now to 25% on corporations,” said Greg Valliere, chief U.S. policy strategist at AGF Investments, in a note. “But this might not be a victory, since other provisions — many controversial — may have to be considered to make up the revenue gap.”

The Washington Post reported late Wednesday that Biden’s advisers are floating new plans, including a tax on billionaires’ assets, a minimum tax on corporations and a tax on companies issuing stock buybacks, potentially raising hundreds of billions of dollars.

Read: White House mulls Plan B, with new taxes for billionaires, stock buybacks: report

In other news, indebted Chinese property developer, Evergrande
3333,
-12.54%,
was back in the headlines on Thursday after the property developer ended talks to sell most of its property services division.

Investors continue to sift through earnings, including results from Dow component International Business Machines Corp.
IBM,
-9.56%,
which missed revenue estimates, and Tesla Inc.
TSLA,
+3.26%,
which offered a cautious outlook after beating third-quarter earnings expectations. IBM shares led Dow decliners, falling 9.6%. Tesla rallied back from an early swoon to close up 3.3%.

Federal Reserve officials in recent days, including Governors Christopher Waller and Randal Quarles, and Cleveland Fed President Loretta Mester, may be laying the groundwork for interest-rate hikes next year if high inflation persists.

The U.S. economy still is growing at a solid pace, the Federal Reserve’s Beige Book noted Wednesday, but labor shortages and supply-chain bottlenecks are restraining growth and triggering higher inflation.

On the economic front, U.S. data showed first-time applications for unemployment benefits fell to 290,000 from 296,000 in the week ended Oct.16. Economists had looked for a figure of 300,000. The Philadelphia Fed’s October manufacturing index fell to 23.8 from 24.5 a month earlier, compared with expectations for a rise to 30.7.

U.S. existing-home sales rose 7% on a monthly basis in September, reaching a seasonally-adjusted, annual rate of 6.29 million, the National Association of Realtors said Thursday.

The U.S. leading economic index grew a softer 0.2% in September, indicating somewhat slower growth, the Conference Board said Thursday.

Which companies were in focus?

Airlines were also in focus on Thursday. Shares of American Airlines Group Inc.
AAL,
+1.90%
rose 1.9% after the air carrier reported a narrower-than-expected third-quarter loss on revenue that nearly tripled, though load factor came up short.

Southwest Airlines Co.
LUV,
-1.64%
reported a narrower-than-expected third-quarter loss as passenger revenue nearly tripled, while overall demand remained “quite strong” despite a deceleration in traffic in August and September as a result of surging COVID-19 cases. Shares ended the day down 1.6%.

AT&T Inc.
T,
-0.58%
shares were down 0.6% after the telecommunications giant posted better-than-expected profit for its third quarter and continued to see strong subscriber additions in its wireless business.

Pfizer Inc.
PFE,
+0.14%
and its German partner BioNTech SE
BNTX,
+6.29%
said Thursday a late-stage trial of a 30-milligram booster dose of their COVID-19 vaccine showed efficacy of 95.6% compared with those who received a placebo. Pfizer shares closed up 0.1%, while BioNTech ADRs surged 6.3%.

Freeport-McMoRan Inc.
FCX,
-1.31%
shares were down 1.3% after the mining company reported third-quarter net profit that soared more than fourfold, while revenue came in shy of forecasts, as realized copper prices soared but gold prices fell.

Shares of Digital World Acquisition Corp.
DWACU,
+382.60%
surged 382.6%, and its A-class shares 
DWAC,
+356.83%
rose more than 356.8%, after the special-purpose acquisition company announced a plan to merge with Trump Media & Technology Group, which aims to launch a social-media platform backed by former President Donald Trump. 

What did other markets do?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.702%
rose 3.9 basis points to 1.674%. Yields and debt prices move in opposite directions.

The ICE U.S. Dollar Index
DXY,
+0.21%,
a measure of the currency against a basket of six major rivals, edged up 0.2%.

Oil futures pulled back from multiyear highs, with the U.S. benchmark
CL00,
-0.95%
ending down 1.1% to settle at $82.50 a barrel on the New York Mercantile Exchange. Gold futures
GC00,
-0.07%
closed 0.2% lower to settle at $1,781.90 an ounce.

The Stoxx Europe 600
SXXP,
-0.08%
shed 0.1, while London’s FTSE 100
UKX,
-0.45%
lost 0.5%.

The Shanghai Composite
SHCOMP,
+0.22%
rose 0.2%, while the Hang Seng Index
HSI,
-0.45%
fell 0.5% in Hong Kong and Japan’s Nikkei 225
NIK,
-1.87%
dropped 1.9%.