Trade Findings and Adjustments 08-05-2021
There are two things that are huge risk to today’s market:
Fed Budget and raising the cap
Tax increase scheduled to be put into place for next year
Covid shutdowns are happing
The worry in the next quarter will be down due to employment = Sept ends the extra Fed unemployment payment
The problem is inventories are at a historic low = Houses, material goods, products
Companies don’t have the typical Christmas rally inventory to sell !!!!!
Historically the worst month Sept/Oct
Get Ready for $178 Billion of Selling Ahead of the Capital-Gains Tax Hike. These Are the Stocks Most at Risk.
Last Updated: April 23, 2021 at 10:46 a.m. ETFirst Published: April 23, 2021 at 10:45 a.m. ET
PHOTO BY JIM WATSON/AFP VIA GETTY IMAGES
This article originally appeared on MarketWatch.
Investors may have had a sense of déjà vu on Thursday. Last month, a Need to Know column explored what would pay for President Joe Biden’s infrastructure spending—and quoted a former Biden aide, Evercore ISI analyst Sarah Bianchi, who said it would “probably include nearly doubling capital-gains taxes on those with income over $1 million.” Not that it was any state secret—the Biden campaign’s website suggested such a move too.
In any case, the stock market reacted negatively to reports that the White House was considering doubling capital-gains taxes on the wealthy to help pay for social spending, as the S&P 500 dropped by the most in a month. The news was particularly jarring to the highflying cryptocurrency space, with Bitcoin and Ethereum slumping.
One question now is whether the closely divided Senate will go for it. “Frankly, I suspect that these proposed tax increases will be knocked down at the hands of Senator [Joe] Manchin who remains the ‘swing’ vote in the Senate,” said Louis Navellier, the chairman of Navellier & Associates. An alternative is that the Senate could increase the capital-gains tax, but by a smaller amount—analysts at Goldman Sachs suggest they’ll settle at 28%, up from 20% currently. Another question is whether the tax will be applied retroactively or not.
Analysts at Goldman Sachs—in October—ran the numbers on the stock market impact of previous capital-gains tax hikes. While there is only a modest impact on the stock market as a whole, momentum stocks usually get socked before they are levied, they found. That makes sense—investors logically are more motivated to sell the stocks where they would save the most by avoiding higher capital-gains taxes.
The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of their equity assets, the Goldman analysts found. According to the Federal Reserve’s distributional financial account data, the top 1% held $17.79 trillion of equities and mutual funds in the fourth quarter of 2020—so a 1% selling of stocks this time would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)
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