Waiting for the Next Thing

By Alex Eule | Monday, June 7

Where to Next? It was another good day for the meme stocks, with AMC Entertainment and GameStop both up more than 13%. But today's standout trade belonged to Biogen. The company's stock soared 38% after the FDA approved the company's Alzheimer's treatment in a long-awaited ruling. More on that below. 

For broad markets, though, it was a fairly uneventful day. The major markets were mixed, with the Dow Jones Industrial Average down 0.4%, the S&P 500 basically flat, and the Nasdaq Composite up 0.5%. A lower-than-usual 10.5 billion shares traded hands in total. The tentative trading suggests a market awaiting its next big theme. The risk of the Federal Reserve quickening its economic tightening looks lower after Friday's tepid jobs report.

And inflation worries are on the back burner. The 10-year Treasury yield rose 1 basis point, or one-hundredth of a percentage point, today, but it is still down 17 basis points from a late-March high. The next inflation test comes Thursday, when the Bureau of Labor Statistics releases its consumer price index for May. As of now, economists forecast a year-over-year rise of 4.6%, following April's 4.2% jump.

Corporate taxes are likely to get renewed focus in the coming weeks. While the U.S. Congress might be deadlocked, there's now surprising consensus on the international stage. The G-7 countries---- Canada, France, Germany, Italy, Japan, the U.K., and the U.S. -- agreed over the weekend to a global minimum tax of at least 15%. "That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world," Secretary of the Treasury Janet Yellen said.

While any tax increase is generally seen negatively by markets, there could be a silver lining for investors in the agreement. Gavekal Research policy analysts Yanmei Xie and Udith Sikand offered this assessment:  

..the deal marks the beginning of the end of profit shifting by multinationals to maximize tax efficiency. While this will be negative for the earnings of the big tech and big pharma companies which have made most use of profit-shifting techniques, the deal will avert the trans-Atlantic trade war that has been brewing over digital taxes—a clear near term positive...

The long-term could be more complicated, though:

By overcoming longstanding prejudices about national tax sovereignty in favor of supranational cooperation, the deal reduces international tax competition. In the long run, this is only likely to mean higher effective corporate tax rates.