By Caroline Valetkevitch
Investors typically sell stocks to cut their losses at year end. But worries about the “fiscal cliff” - and the possibility of higher taxes in 2013 - may act as the greatest incentive to sell both winners and losers by December 31.
The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-related selling even more appealing than usual.
Tax-related selling may be behind the weaker trend in the shares of market leader Apple (AAPL), analysts said. The stock is down 20 percent for the quarter, but it’s still up nearly 32 percent for the year.
Apple dropped 8.9 percent in the past week alone. For a stock that gained more than 25 percent a year for four consecutive years, the embedded capital gains suddenly look like a selling opportunity if one’s tax bill is going to jump sharply just because the calendar changes.
“Tax-loss selling is always a factor (but) tax-gains selling has been a factor this year,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
“You have a lot of high-net-worth individuals in taxable accounts, and that could be what’s affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual.”
Of this year’s top 20 performers in the S&P 1500 index, which includes large, small and mid-cap stocks, all but four have lost ground in the last five trading sessions.
The rush to avoid higher taxes on portfolio gains could cause additional weakness.
The S&P 500 ended the week up just 0.1 percent after another week of trading largely tied to fiscal cliff negotiation news, which has pushed the market in both directions.
A PAIN PILL FROM THE FED?
This week’s Federal Reserve meeting could offer some relief if policymakers announce further plans to help the lackluster U.S. economy. The Federal Open Market Committee will meet on Tuesday and Wednesday. The policy statement is expected at about 12:30 p.m. EST on Wednesday after the conclusion of the meeting - the Fed’s last one for the year.
Friday’s jobs report showing non-farm payrolls added 146,000 jobs in November eased worries that superstorm Sandy had hit the labor market hard. Read the rest of this entry »
