The FAAMG stock complex [Facebook, Apple, Amazon, Microsoft and Google] has been one of the best investments of the past five years amid advances in technology that have powered massive bottom line gains for the Big Tech, but proposed U.S. tax hikes could harm that calculus.
But the heady quarterly earnings gains for the likes of Facebook, Apple, Amazon, Microsoft and Google that investors have come to know and love may be at risk of a sharp cool-down if the Biden administration’s various tax hikes kicks in next year, Goldman Sachs chief U.S. equity strategist David Kostin warns.
The Biden administration is seeking to lift the corporate tax rate to 28% from the Trump-era’s 21%… [and] is also readying to increase the capital gains tax on the wealthiest Americans to 43.4%, including a surtax to help fund infrastructure investments. The current capital gains tax stands at a top rate of 23.8%, which has been in place since Jan. 1, 2013.
Kostin says FAAMG stocks are also vulnerable to any increase in the capital gains tax.
“If the capital gains tax rate becomes set to rise in 2022, investors subject to the higher rate may choose to realize some of their substantial capital gains in 2021 at the lower current tax rate. The FAAMG stocks have appreciated by $5 trillion during the last 5 years, accounting for 29% of the S&P 500 market cap increase during that time,” Kostin explains. “The proposed tax reform plans by… Biden would raise both corporate and capital gains tax rates and represent possible sources of risk for the FAAMG stocks.”
MacDailyNews Take: Plans and proposals are not passed bills signed into law.