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Tax-loss selling, 'Santa rally' could sway U.S. stocks after November melt-up – Yahoo Finance

Written by David Randall

NEW YORK (Reuters) – As U.S. stocks continue their big rally at the end of a roller-coaster year, investors are worried about potential swings in stocks in the remaining weeks of 2023, including tax-loss selling and the so-called Santa Claus rally. We are looking at the factors.

A key catalyst for stock prices will continue to be the expected trajectory of the Federal Reserve’s monetary policy. The S&P 500 has risen 19.6% year-to-date, setting a new close for the index as evidence of slowing economic growth raises expectations that the U.S. central bank could start cutting interest rates as early as the first half of 2024. caused a rise in Friday was the highest price of the year.

At the same time, seasonal trends are particularly pronounced this year. September was the weakest month in history for stocks, with the S&P 500 index down nearly 5%. October was notable for its high volatility, with stock prices fluctuating widely. The S&P 500 index rose nearly 9% in November, historically a strong month for the index.

“It’s been a solid year, but history shows that December can sometimes follow its own rhythm,” said Sam Stovall, chief investment strategist at CFRA Research in New York. Stated.

Investors will be watching the U.S. jobs report on Dec. 8 next week to see whether economic growth remains flat.

Overall, December was the second-best month for the S&P 500, with the index gaining an average of 1.54% for the month since 1945, according to CFRA. It was also the month with the highest rate of increase, with the index rising 77%, according to the company’s data.

According to research from LPL Financial, the second half of December tends to be better than the first half of the month. The S&P 500 rose an average of 1.4% in the second half of December during the so-called Santa Claus rally, compared with a 0.1% gain in the first half, according to an LPL analysis of market movements dating back to 1950.

However, underperforming stocks could come under further pressure from tax-loss selling in December as investors liquidate losers to lock in losses before the end of the year. Analysts said if history is any guide, some of these stocks could rebound later in the month and into January as investors move back into undervalued stocks.

Since 1986, stocks that fell more than 10% from January to the end of October outperformed the S&P 500 by an average of 1.9% in the following three months, according to BofA Global Research. In a late October report, BofA said PayPal Holdings, CVS Health and Kraft Heinz are among the stocks the bank recommends buying for tax-related rebound.

“The market’s gains this year have been very narrow,” said Sameer Samana, senior global market strategist at Wells Fargo Investments. There is reason to believe that it will.” Institute.

Despite the market’s strong gains since the beginning of the year, your investment portfolio is likely to contain a large number of underperforming stocks. Data from S&P Dow Jones Indices shows that nearly 72% of the S&P 500’s gains are driven by a group of giant stocks such as Apple, Tesla, and Nvidia, which are heavily weighted within the index. Ta.

Many other stocks are also in decline. The equally weighted S&P 500 index, whose performance is not skewed toward big tech and growth stocks, will rise about 6% in 2023.

Some worry that investor over-exuberance has already set in after November’s big rally that caused big moves in some of the market’s more speculative stocks.

For example, streaming service company Roku soared 75% in November, cryptocurrency firm Coinbase Global rose 62%, and Cathie Wood’s ARK Innovation Fund rose 31%, the highest in any month in the past five years. Performance recorded.

Michael Hartnett, chief investment strategist at BofA Global Research, said in a note Friday that the firm’s Contrarian Bull and Bear Index, which evaluates factors such as hedge fund positioning, stock flows and bond flows, has moved out of the “buy” zone. He said he got out. First time since mid-October.

“If you catch it, there’s no need to chase it,” he wrote about the rally.

(Reporting by David Randall; Editing by Ira Iosebashvili and Richard Chang)

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