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Treasury Secretary Janet Yellen isn’t the only wealthy baby boomers blamed for Tuesday’s tech crash. A subcategory of individual investors – “the oldest cohort, boom” – appears to have played a role in a sell-off that wiped 1.8% off the tech-focused Nasdaq-100 NDX, down -1.85% on Tuesday and is part of a decline. broader last week, said Eric Liu, co-founder and head of research at Vanda Securities, a research company that tracks the activity of individual investors.
The sell-off comes after older traders appeared to be loaded down with stocks. “This group has been increasing its exposure to risk since the US elections last fall, and cash levels have now almost returned to pre-pandemic lows,” Liu said in a Tuesday note. Recent trends in US money
market funds paint a similar picture, he said. Institutional money
market assets have increased since early 2021, while retail money
market assets have fallen. Liu emphasized that these retail flows are more representative of older merchants using platforms provided by Schwab or TD Ameritrade, rather than “the Robinhood crowd,” as the latter do not have the option of putting idle cash in traditional funds from the market. money
market. But why would boomers turn around and ditch tech stocks? Liu said his guess was that concerns surrounding President Joe Biden
‘s $ 2.3 billion capital gains tax proposal may be mounting, particularly after his speech last week at a joint session of Congress. Biden has proposed raising the tax rate on capital gains from 20% to 39.6% for investors making more than $ 1 million a year. Read: Wealthy taxpayers are preparing for more taxes under Biden, but they lack this key information. Richer individual investors appear to have responded by selling the stocks that have been the biggest winners since early last year, Liu said. The pain could spread. “If boomer sales continue into the second half of this week, I would expect these investors to start looking to cut back on the second best-performing group of stocks since January 20: cyclicals and a bevy of stock
reopenings,” wrote Liu ( see The table below).
Stocks fell to session lows around noon Tuesday after Yellen, 74, in an interview with The Atlantic that was recorded on Monday and aired Tuesday, said interest rates may have to go up. ” something “to prevent the economy from overheating. Later in remarks after the market closed, Yellen, a former chair of the Federal Reserve, emphasized that she was not “predicting or recommending” rate hikes, adding that “if anyone appreciates the independence of the Fed, I think that person is me “. The Nasdaq Composite COMP, -1.88% ended the day with a loss of 1.9%, while the Dow Jones Industrial Average DJIA, + 0.06% achieved a gain of just 20 points, or 0.1%, and the S&P 500 SPX, -0 , 67% fell 0.7%. Meanwhile, Liu said he did not expect 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 elevated but “less alarming” than it was in the run-up to those two pullbacks, he said, adding that the same is true of exposure from commodity trading advisers. premiums that follow trends to the Nasdaq. 100 futures.