Recent data from Bank of America (NYSE:BAC) (BofA) indicates that tax-advantaged selling is applying pressure on U.S. stocks, potentially creating investment opportunities for patient traders. Stocks most affected by tax-loss harvesting, a strategy of selling losing stocks to reduce tax liabilities, often rebound in January. This trend has been observed by BofA’s sales desk among institutional clients like mutual funds who face an October tax deadline.
Today, BofA identified high-quality stocks that are down 10% or more from January 1 to October 30 as "tax loss candidates". The team led by Savita Subramanian found that these stocks historically outperformed the S&P 500 by 1.9 percentage points from November to January.
Despite gains in the S&P 500 and Nasdaq Composite largely driven by mega-cap technology companies, a number of stocks including Coca-Cola (NYSE:KO) Co., Home Depot Inc (NYSE:HD)., Goldman Sachs Group (NYSE:GS), Citigroup Inc (NYSE:C)., and Honeywell International (NASDAQ:HON) have posted significant losses this year.
According to FactSet data, the Dow Jones Industrial Average is showing a loss of 1.4%, while the S&P 500 equal-weighted index is down by 5.4%. While this tax-advantaged selling can depress stock prices towards the year-end, it also primes them for a substantial rebound when traders repurchase after the new year.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.