Tax-loss selling may intensify in the coming weeks, Wolfe Research says

Investing.com - A wave of selling securities at a loss to offset capital gains taxes intensified at the end of October and could gather pace once again in the coming weeks, according to analysts at Wolfe Research.

So-called tax-loss selling, or harvesting, is a commonly employed strategy among investors seeking to reduce their tax burdens without fundamentally altering the make-up of their portfolios.

This type of trading activity tends to become more apparent toward the end of the calendar year, as investors assess the returns of their positions and how best to mitigate the taxes they owe.

In a note to clients, the Wolfe analysts including Chris Senyek and Adam Calingasan flagged that their basket of tax loss stocks fell 7% last week and over a "first wave" of this selling from September 15 to October 31, underperforming the benchmark S&P 500.

They added that, historically, these stocks have bounced during the first 10 trading days of November "only to sell off again" during the second half of the month through the middle of December. Mid-November to mid-December selling is often partially driven by the annual distributions of dividends and other capital gains that mutual funds are required to make to their shareholders, typically in December, the analysts said.

They added that retail investors looking to temper their tax obligations this year are facing "material" increases in stock prices so far in 2025, placing further pressure on them to sell losing names in the weeks ahead. Some of these year-to-date decliners include burrito chain Chipotle Mexican Grill and athleisure retailer Lululemon Athletica, the analysts flagged.

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