When thinking about the inevitable capital gains tax increase, it is interesting to look at which sectors will be most affected. The marginal non-institutional investors with large capital gains in a stock might be motivated to sell their shares into year end in order to avoid the 5% tax increase. However, the sectors impacted by a changing capital gains tax depend on the distribution of holding times by investors. If investors hold stocks for a year and a half on average it has a very different implication than if the average investors hold stocks for 2 or more years.
On a 6 month time horizon, by the end of the year people who bought 6 months ago will be able to see their holdings at the long term capital gains tax rate:
1 year time horizon with returns over 50%: Everything rebounded this year, but particularly consumer discretionary and financial stocks.
2 Year Time Horizon with returns over 20%: Technology and consumer discretionary stocks are the ones with capital gains.
3 Year Horizon: Investors with a three year time horizon are sitting on gains everywhere but in financials and utilities.
5 Year Time Horizon with returns over 40%:
Source: Palantir Finance