We knew at some point; the Biden Administration would float out how they would pay the so-called “American Families Plan.” Believe it or not, the administration is zeroing in on Wall Street…again.  

The news report of a capital gains tax of 43.4% shocked a market that was building upside momentum.

S&P 500 One-Day Chart

Everyone Pays

The 43.4% is from hitting investors with 39.6% plus 3.8% to pay for Obamacare, but for some time, investors had braced for a lower, saner figure.

The increase is supposed to be more palatable because it targets the rich or those folks earning a million dollars a year or more. I have a couple of comments on that notion.

Millions of Americans are directly invested in the stock market. These folks are in each economic bracket with 65% invested in a retirement program.

Forget about the notion of sticking it to the rich. One million dollars is very good money, but it’s not the wealthy folks avoiding income taxes by living off their investments, which is the narrative the media is pushing.

All we hear about is Jeff Bezos and Amazon (AMZN) not paying taxes, but a plan(s) is also put forth; the primary target are successful small businesses or the person that worked hard for two or three decades.

This person saved, sacrificed, and invested along the way, and this is the reward.

In many cases, it’s the first person in the family to reach that status, making it a legacy achievement that the government would greet with a punishing blow (estate taxes are also going up, and the threshold to pay them is going down). 

The bottom line is this tax hurts and, according to the Tax Foundation, would result in less revenue, not more. The 43.4% rate would take America to the top of the heap, displacing Denmark, which currently has a 42% cap gains tax. We would leapfrog Finland at 34% and China at 20%.

Try to operate a Great Welfare Society when investments die, and stocks shift into a nuclear winter.

Message of the Market (other than run!)

Market breadth was actually a lot better, or not as bad as one might have imagined. 

Market Breadth	NYSE	NASDAQ
Advancing	1,276	2,023
Declining	2,004	2,136
52 Week High	247	131
52 Week Low	14	28
Up Volume	1.74B	2.11B
Down Volume	2.53B	2.29B

There was an eclectic mix of winners, starting with Equifax (EFX), which rocketed higher on a brokerage upgrade.

On a day where there is snap selling, the biggest losers are often the names that have been the biggest winners, hence the extra pressure on Technology, Energy, and Consumer Discretionary. 

The main lesson we are reminded of is sharp sudden declines leave nowhere to hide other than cash and patience. Be smart, folks, and do not sell your best positions in a huff or panic.

S&P 500 Index	-0.92%
Communication Services XLC	-0.74%
Consumer Discretionary XLY	-1.11%
Consumer Staples XLP	-0.74%
Energy XLE	-1.17%
Financials XLF	-1.11%
Health Care XLV	-0.45%
Industrials XLI	-0.51%
Materials XLB	-1.69%
Real Estate XLRE	-0.43%
Technology XLK	-1.17%
Utilities XLU	-0.71%

Portfolio Approach

We did not add any positions yesterday in our Hotline Model Portfolio and are adding to Technology this morning. 

Today’s Session

Futures are pointing to a positive open as stocks try and stage a rebound after yesterday’s capital gains hike selloff.  Stocks aren’t the only thing that got hit.  Bitcoin is down below $50,000 and cyrpto currencies are selling off.

 

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