Profit Pregame

Bad News for the Market’s Biggest Gainers

In April, reports began to surface that President Biden was looking to increase the capital gain tax – a type of tax applied to the sale of an asset like stocks or other property – up to 43.4% for anyone making more than $1 million per year.

Investors that were considering taking profits to avoid the coming capital gains hike got some bad news last week.

According to a report from the Wall Street Journal, President Biden’s proposed budget includes a measure that would retroactively begin the start date of the capital gains tax increase back to April.

And while this news is still unsubstantiated, it would certainly change the plans of a lot of investors that were hoping to get long-held, profitable positions to the sidelines before the tax hike.

Ultimately, Congress will need to vote to approve any retroactive tax. But the news should at least put a temporary halt to anyone looking to bank a large profit until more information is available.

Thus far, the market’s reaction has been relatively muted. It’s been speculated that the Biden administration has leaked its plans to the media in an effort to gauge reactions. Watch for any comments from prominent members of Congress on the subject to give us a clearer picture of whether the retroactive increase would stand a chance of making it through the House and Senate.

Trading tip of the week

Today is Memorial Day, a day to honor those that have given their lives in service to their country. My sincere gratitude goes out to all that have served.

For our trading purposes, it is also a market holiday.

Ahead of a market holiday, we often see time decay come out of options.

So, I am always careful with my front month premium. When entering into positions around a market holiday, we have to look at the options not only the day before a holiday, but also a few days before.

Earnings report to watch

When Advanced Auto Parts, Inc. (AAP) reports its Q1 earnings on Wednesday before the opening bell, investors will be looking for a big improvement over last quarter’s report – in which sales disappointed.

Recent revisions have estimates for AAP’s upcoming report moving up slightly, but with the stock price sitting near all-time highs, it may take a sizeable beat to move the stock higher.

The market is anticipating a roughly 22% revenue increase year over year for AAP as new stores and an improving online presence have helped to increase sales in the first quarter.

But keep an eye on how much the expenses to make those expansions happen cut into the bottom line.

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