Trading Nation

Tax-loss selling season could take a bite out of record highs

This once-a-year occurrence could derail the record rally

A once-a-year occurrence could knock stocks off all-time highs into year-end.

'Tis the season when investors try to mitigate losses by selling stocks in an effort to decrease their capital gains tax liabilities.

Even though it's shaping up as one of Wall Street's best years ever, Oppenheimer Asset Management's John Stoltzfus warns there's still plenty of investors who want to get out of losing trades.

"You have to assume things will get funky with some of those stocks that have been hit," the firm's chief investment strategist said Tuesday on CNBC's "Trading Nation."

The issue: Stoltzfus contends people tend to buy and sell at the wrong time in all types of markets.

Stoltzfus cites semiconductor trading activity as an example.

The group is up 53% so far this year, but there were pullbacks in May and August. With the VanEck Vectors Semiconductor ETF, which tracks the group, slightly negative over the past week, Stoltzfus believes investors could see this as a prime opportunity to sell.

"Tax-loss selling and some profit-taking ... can be taken when the market is either moving sideways or moving lower in periods of the bull market where sellers don't have to worry so much about FOMO or fear of missing out," he said.

Stoltzfus predicts tax-loss selling will intensify as the year winds down. His S&P 500 year-end price target is 2,960, about 6% below Tuesday's close.

Yet, he considers himself a market bull. In his Monday research note, Stoltzfus suggests the market will find its footing again in the new year.

"For now investors should benefit from practicing patience, looking for any babies that get thrown out with the bath water in the process of year-end tax loss harvesting, rotation and rebalancing," he wrote.

His favorite S&P groups include information technology, industrials, consumer discretionary and financials.


This scenario could send stocks falling as much as 6% into year end