Market Update – 7/2/2021
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Although Delta variant impacted the world, the US stock market obviously did not care (the Asian market is a different story). In the absence of other major news in the market, the S&P 500 and Nasdaq index kept hitting new highs with the contribution from retail investors.
Since the pandemic, the active participation of retail investors has been mainly due to: 1) zero commission; 2) lack of entertainment; 3) stimulus checks.
- In 2019, driven by several mainstream brokerage firms, zero commission became normal. Zero commissions will continue to encourage retail investors to enter and exit the market in the short term. However, investors only focusing on zero commission will miss the bigger picture. Short-term capital gain tax, which can exceed 40%, will have a bigger impact on the after-tax return. Also, if investors do not pay attention to the wash sale restrictions, the loss may not be deductible while the profit is still taxable.
- “Lack of entertainment” and “stimulus checks” will have minimal impact on retail investors’ in the future. However, we expect that retail investors will still play a pivotal role in the market until investors lose confidence during market correction.
- For investors trading short-term, you should always consider to trade in retirement accounts (IRA, 401K) first to minimize the tax impact.
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