Who triggered the sale of tech stocks? Blame the Baby Boomers
Treasury Secretary Janet Yellen isn’t the only wealthy baby boomer to be blamed for Tuesday’s tech rout.
A sub-category of individual investors – “the oldest baby boomer cohort” – appears to have played a role in a massive sell-off that knocked down 1.8% of the tech-focused Nasdaq-100 NDX,
Tuesday and is part of a larger decline over the past week, said Eric Liu, co-founder and head of research at Vanda Securities, a research firm that tracks the activity of individual investors.
The sell comes after older traders appeared to load up on stocks.
“This group has increased its exposure to risk since the US election last fall, with liquidity levels almost back to pre-pandemic lows,” Liu said in a note Tuesday. Recent trends in US money market funds paint a similar picture, he said. Institutional money market assets have been rising since the start of 2021, while retail money market assets have fallen.
Liu pointed out that these retail feeds are more representative of older traders using the platforms provided by Schwab or TD Ameritrade, rather than the “Robinhood crowd,” since the latter do not have the ability to place unused cash in. traditional money market funds.
But why would baby boomers turn around and ditch tech stocks? Liu said he assumed concerns about President Joe Biden’s $ 2.3 billion capital gains tax proposal could increase, especially after his speech last week at a joint session of Congress. Biden has proposed increasing the capital gains tax rate from 20% to 39.6% for investors earning more than $ 1 million per year.
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The wealthiest individual investors appear to have responded by selling the stocks that have been the biggest winners since the start of last year, Liu said.
The pain could spread.
“If baby boomer sales continue into the second half of this week, I would expect these investors to start looking to cut the second best performing group of stocks since January 20: Cyclics and Multitudes. reopening games, ”Liu wrote (see table below).
Shares fell to session lows around noon Tuesday after Yellen, 74, in an interview with The Atlantic that was taped Monday and aired on Tuesday, said interest rates may have to rise “somewhat.” to prevent overheating of the economy. Later, in remarks after the market closed, Yellen, a former Federal Reserve chairwoman, stressed that she neither “predicts nor recommends” rate hikes, adding that “if anyone appreciates independence from the Fed, I think that person is me ”.
The Nasdaq Composite COMP,
ended the day with a loss of 1.9%, while the Dow Jones Industrial Average DJIA,
eked a gain of just under 20 points, or 0.1%, and the S&P 500 SPX,
Liu, meanwhile, said he wasn’t looking for last week’s tech weakness to turn into a repeat of the double-digit percentage declines seen last September or the second half of February.
From a broader perspective, the positioning of speculative traders is high but “less alarming” than it was as these two pullbacks approached, he said, adding that so will be. the same applies to the exposure of commodity trading advisers to the Nasdaq. 100 futures contracts.