Wall Street stocks turned lower following reports that US president Joe Biden planned to raise capital gains tax for wealthy individuals.

The S&P 500 index gave up morning increases and closed the trading day down 0.9 per cent following a Bloomberg report stating that people earning more than $1m would pay a capital gains rate of 39.6 per cent, up from 20 per cent. The tech-heavy Nasdaq Composite followed the blue-chip benchmark lower, falling 0.9 per cent.

The trading day shaped out to the S&P 500’s worst session in about a month, reversing a markets rally that has prioritised euphoric economic data and strong earnings over other tax increases proposed by the Biden administration.

“The [Federal Reserve] is very supportive, that’s true; the economy is accelerating, that’s also true,” said Matt Stucky, a portfolio manager at Northwestern Mutual. “But there are counterweights, and one of those is certainly policy.”

The proposed doubling of capital gains taxes, he added, “is certainly a pretty jarring headline to read”.

Line chart of US equity indices dropped after edging higher (% change from Wednesday close) showing Markets tumble on capital gains tax report

The yield on the US 10-year Treasury note fell 0.01 percentage points to 1.54 per cent after unemployment data showed the number of new claimants in the US fell to a pandemic-era low last week.

The Cboe’s Vix index of US equity volatility, which is sometimes called Wall Street's fear gauge, jumped to its highest level this month after the report was released, briefly coming just shy of 20, before retreating to 18.8.

Across the Atlantic, equities rose for a second session, with the pan-regional Stoxx Europe 600 index closing up 0.7 per cent. In the UK, London’s FTSE 100 added 0.6 per cent, while the FTSE 250, its mid-cap peer, climbed 1.3 per cent for its best daily performance since early March.

The Stoxx 600 is trading at 18 times forecast earnings compared with 23 times for the S&P 500 as Europe lags behind the US in the rollout of coronavirus vaccinations. Azad Zangana, senior European economist and strategist at Schroders, said this meant markets had more of a recovery trend to look forward to in Europe.

“US assets are incredibly expensive now compared to their own history and the rest of the world, so it is very easy to find good arguments to be underweight the US and overweight Europe,” he said.

The 10-year German Bund yield was little changed at minus 0.26 per cent after a European Central Bank meeting that signalled no change to its commitment to buying up vast quantities of bonds issued by the 19 nations in the eurozone.

The global benchmark Brent crude fell 0.2 per cent to $65.19 a barrel after India, one of the world’s major oil importers, reported a record of 315,000 new daily infections, surpassing the US peak hit earlier this year.