Some of the biggest losing stocks in 2024 could be in for even steeper declines as investors jettison them to save on taxes, according to Morgan Stanley. October has been rocky for the three major averages – they are down this month as investors grapple with Middle East tensions and sharply higher oil prices – but for the entire year, the S & P 500 and the Nasdaq Composite have soared more than 20%. With the fourth quarter underway, investors are taking stock of their winners and losers, and considering dumping some of their underperformers to realize capital losses and offset capital gains.
Such moves, known as tax loss harvesting, helps investors trim their tax bills the next year. Further, if losses exceed capital gains, investors may apply up to $3,000 of those losses to offset ordinary income on their federal return, and can carry any remaining losses into the future. Tax loss selling To pick out the names that are likely to see tax loss selling pressure as the year winds down, Morgan Stanley scanned the S & P 1500, seeking stocks in the top quintile of Wall Street investment ratings on Jan.
16 as a proxy for stocks that are widely held. Then the firm looked for names that have dropped at least 10% from mid-January through the end of September. "In the month of October, our Tax Loss Selling stocks have tended to underperform the market by an average of 178 [basis points] and underperform sector and industry group peers by 114 and 110 bps, respectively, with hit rates.
