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Tax management

Tax management update – Q3 2024

October 17, 2024 - 5 min read
A proactive harvesting process looking for opportunities throughout the year can take advantage of these pockets of weakness, even though the general trend of equity markets remains positive.
– Peter Klos, CFA®, Client Portfolio Manager, Natixis Investment Managers Solutions

Equity markets have increased substantially in 2024, with large-cap stocks continuing to perform well during the third quarter. Although mega-caps continue to perform well, we saw a general broadening of strength across the market, with smaller-cap and value stocks having a very strong period.


Tax policy talk on the campaign trail

Both presidential candidates have outlined a number of tax changes they’d like to make. Former President Donald Trump’s platform generally calls for lower taxes and higher tariffs. He suggests he would make the expiring individual and estate tax cuts from the Tax Cuts and Jobs Act (TCJA) permanent; discontinue the state and local tax (SALT) deduction cap; eliminate taxes on Social Security benefits and tipped and overtime wages; lower the corporate tax rate from 21% to 20% for all companies, and to 15% for companies that make products in the US and impose a universal tariff of 10% to 20%, as well as a 60% tariff on imports from China.

Vice President Kamala Harris has called for a mix of lower taxes for some Americans and small businesses, and an increase for higher earners, as well as corporations. She would seek to extend the TCJA tax rates for those earning less than $400K; eliminate taxes on tips; increase the child tax credit for up to $6K; give $25K in downpayment assistance for first-time home buyers; increase the Medicare tax from 3.8% to 5% for people earning more than $400K; tax unrealized gains on those with net worth exceeding $100M; raise the long-term capital gains tax rate on those earning over $1M from 20% to 28%; raise the corporate tax rate from 21% to 28%; increase stock repurchase excise tax from 1% to 4%; and expand the small-business start-up deduction from $5K to $50K. Each candidate’s ability to implement these changes will be highly dependent on control across the House and Senate, as well. A split situation will likely lead to less-extreme changes.


Positive performance broadened across sectors

The number of stocks in the S&P 500® posting positive returns increased materially during Q3, with over 76% of the individual names rising in value over the course of the first nine months of 2024. Although there are clearly some very big winners, especially in the technology space, positive performance really broadened out nicely as a variety of individual stocks and sectors moved to new all-time highs. Value outperforming growth was a fairly significant shift when compared to the first six months of 2024. Also, small-caps rose dramatically during the quarter, with the S&P 600® increasing by approximately 10.1%.



Winners, losers, and total return for the S&P 500® by calendar year
Winners, losers, and total return for the S&P 500® by calendar year Source: FactSet, Natixis Investment Managers Solutions

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

Loss harvesting opportunities in Q3

Although the broad-based S&P 500® continued to increase in value, there was some volatility in the markets, especially in early August. A proactive harvesting process looking for opportunities throughout the year can take advantage of these pockets of weakness, even though the general trend of equity markets remains positive. This harvesting opportunity will vary quite a bit based on client-specific events (when the client invested, cash flows, etc.) along with manager changes. But generally speaking, equity and fixed income portfolios tended to see fairly limited harvesting opportunities in Q3.

Resources

Tax-efficient investing in separately managed accounts (SMAs)

Direct indexing SMAs can help address key issues facing tax-sensitive investors. All accounts are actively managed to optimize tax loss harvesting while providing beta exposure to an index. Our tax-managed SMAs include:

S&P 500® Strategy (Large Cap)

S&P 400® Strategy (Mid Cap)

S&P 600® Strategy (Small Cap)

S&P 1500® Strategy (All Cap)

S&P Global 500 Strategy (Large Cap)

S&P ADR/International Strategy

What Is tax loss harvesting?

A portfolio can harvest its losses for tax purposes by selling investments when their current value is less than the price originally paid for the security. These losses can be used to offset other capital gains on an investor’s tax return. If there are excess losses, they can be used to offset up to $3,000 in ordinary income – or be banked for use in future years.

Learn more

Want more information on tax-managed investment strategies?

A tax liability is the total amount of tax debt owed by an individual, corporation or other entity to a taxing authority.

Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.

CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.

The S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

Indexes are not investments, do not incur fees and expenses, and are not professionally managed. It is not possible to invest directly in an index.

Investing involves risk, including risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

This document may contain references to copyrights, indexes and trademarks that may not be registered in all jurisdictions. Third-party registrations are the property of their respective owners and are not affiliated with Natixis Investment Managers or any of its related or affiliated companies (collectively “Natixis”). Such third-party owners do not sponsor, endorse or participate in the provision of any Natixis services, funds or other financial products.

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