As we approach the end of 2024, investors are becoming increasingly cautious as they evaluate their stock portfolios, particularly in response to both market turbulence and tax strategies. Morgan Stanley has recently identified several stocks that are poised for additional declines, as investors consider strategic selling to offset capital gains—an approach commonly referred to as tax loss harvesting. This article examines the driving forces behind these trends, the stocks currently facing pressure, and the implications for investors navigating the unpredictable fiscal landscape.
October has proven to be a challenging month for the equity markets, especially with the S&P 500 and the Nasdaq Composite experiencing noticeable dips amid heightened geopolitical tensions, particularly in the Middle East, alongside surging oil prices. Despite a robust performance throughout the year—boasting a gain of over 20%—the recent declines have spurred a reevaluation among investors. The balancing act of calculating profits and losses has led many to reconsider which positions may be worth holding onto and which might be more beneficial to sell as the year closes.
The concept of tax loss harvesting facilitates an effective way for investors to mitigate their tax liabilities. By realizing capital losses on poorly performing assets, investors can offset gains elsewhere in their portfolios, potentially saving considerable sums on their tax bills for the following year. For those with losses exceeding their gains, the IRS permits the application of up to $3,000 against ordinary income, with any remaining losses available for future use. This strategy is especially vital as year-end approaches and financial housecleaning begins.
To pinpoint stocks at risk of being sold off for tax purposes, Morgan Stanley undertook a thorough analysis of the S&P 1500 index, focusing on firms that previously held strong rankings in investment ratings. By identifying those stocks that had lost at least 10% from mid-January to the end of September, the firm highlighted candidates likely to experience downward pressure from tax loss selling. Notably, these “Tax Loss Selling” stocks tend to trail the overall market performance by an average of 178 basis points, indicating a pronounced undercurrent of selling sentiment.
Some notable names have emerged from Morgan Stanley’s analysis, including prominent companies like Adobe, Boeing, and Halliburton, each of which has encountered their own distinct challenges that have eroded investor confidence.
Adobe has had a difficult year, with its stock retreating by nearly 17%. Industry analysts are projecting further declines, driven largely by disappointing fourth-quarter guidance. In a September report, KeyBanc analyst Jackson Ader articulated concerns regarding revenue expectations, specifically within the company’s digital media segment. With earnings forecasts falling short of previous projections and industry consensus, investors may be compelled to divest, leading to further price declines amid end-of-year selling.
Another stock highlighted in Morgan Stanley’s review is Boeing, which has suffered significantly this year, with shares dropping more than 40%. The aerospace giant has been beset by a series of challenges, from mechanical mishaps to labor disputes. The ramifications of a strike among machinists in Seattle have compounded issues related to production delays. As community confidence wanes and investor sentiment turns sour, Boeing finds itself in a precarious position, prompting further discussions regarding potential tax loss selling in the coming months.
Analyst Ronald Epstein of Bank of America has echoed these sentiments, citing Boeing’s plight as reminiscent of a fallen hero—once celebrated for its pioneering role in aerospace, now facing multifaceted crises of its own making.
Lastly, Halliburton, the oil service giant, has recently shown signs of underperformance, with shares sliding about 17% this year. Analysts have adjusted their ratings, suggesting that Halliburton might be less appealing compared to its larger counterparts, particularly in a softening commodity market. The company’s narrower revenue diversification poses a potential risk, as it might lead to more pronounced fluctuations in earnings amid challenging economic conditions.
As we transition into the final months of 2024, investors will need to remain vigilant regarding their portfolios. The phenomenon of tax loss harvesting could significantly impact stock prices, particularly for those underperforming names highlighted in Morgan Stanley’s report. With the backdrop of economic uncertainty due to geopolitical tensions and fluctuating oil prices, careful stock evaluation and strategic decision-making will be paramount. The decisions made in the coming weeks may well set the tone for investors’ financial outlooks as they prepare for the new year ahead.