|Found very logical explanation from CNBC panel regarding why high growth tech stocks like the SEMIs have been selling for the last 10 days. Here are the main points.|
- With the proposed tax code changes, Hedge Funds apparently have to report their gains as ordinary income as opposed to be as capital gains. Because of this, they would take advantage of the current tax laws by taking profits this year. Also, many mutual fund managers are beating their indexes this year because of the exceptional performance of technology holdings and they would like to lock-in their gains before the year end and rebalance their sector weights.
- The inclusion of mandatory FIFO rule for stock trades is forcing some investors to take profits now by picking the lots that are tax efficient to sell.
- Elimination of State and Local Taxes (SALT) is causing investors from states like California and New York to take profits this year to minimize the taxes.
Looks like January should bode well for the technology stocks as all the tax related selling and rebalancing will be behind.