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Need to Know

April 24, 2021, 8:42 a.m. EDT

Get ready for $178 billion of selling ahead of the capital-gains tax hike. These are the stocks most at risk.

By Steve Goldstein

Avid readers of this column 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 the Bloomberg News report that the White House was considering doubling capital-gains taxes on the wealthy to help pay for social spending, as the S&P 500 (S&P:SPX) dropped by the most in a month. The news was particularly jarring to the highflying cryptocurrency space, with bitcoin (COINDESK:BTCUSD) and ethereum (KRAKEN:ETHUSD) 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.)

Here is the list of the top price gainers in the S&P 500 and Nasdaq-100 over the last year and over the last five years.

S&P 500 and Nasdaq-100 gainers
Company One-year % change Company Five-year % change
Penn National (NAS:PENN) 575 Enphase Energy (NAS:ENPH) 6160
L Brands 548 Etsy 2230
Caesars Entertainment (NAS:CZR) 527 Advanced Micro Devices (NAS:AMD) 1882
Tesla (NAS:TSLA) 392 NVIDIA (NAS:NVDA) 1538
Gap (NYS:GPS) 368 Tesla 1318
Freeport McMoran (NYS:FCX) 355 MercadoLibre (NAS:MELI) 1137
Enphase Energy 321 Paycom Software (NYS:PAYC) 943
Tapestry (NYS:TPR) 237 Atlassian Corp. (NAS:TEAM) 859
Etsy (NAS:ETSY) 235 Align Technology (NAS:ALGN) 733
Generac Holdings (NYS:GNRC) 233 Generac Holdings 720
Moderna (NAS:MRNA) 228 Micron Technology (NAS:MU) 695
Peloton Interactive (NAS:PTON) 226 Lam Research (NAS:LRCX) 662
Align Technology (NAS:ALGN) 224 ServiceNow (NYS:NOW) 650
News Corp (NAS:NWSA) 219 Zebra Technologies (NAS:ZBRA) 647
SVB Financial (NAS:SIVB) 210 Caesars Entertainment 645
Data: FactSet (News Corp owns MarketWatch, the publisher of this report.)

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