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Jim Cramer thinks that the fear of higher capital gains taxes could have halted the Santa Rally over the last four days of 2024, even as the S&P 500 set new records during the year.
What Happened: The S&P 500 index fell for the fourth session on Tuesday, which was its longest losing year-end streak since 1966.
Despite missing the typical year-end Santa Rally, the S&P 500 index achieved a 20% plus return for the second consecutive year in 2024 and hit 57 all-time highs. Additionally, the index gained 53.19% over the last two years, from 3,839.5 points on Dec. 30, 2022, to 5,881.63 points on Dec. 31, 2024.
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According to Cramer, while higher taxes possibly triggered the sell-off, he added “I have many fears; that is not one of them.”
The chief strategist at Interactive Brokers, Steve Sosnick, in a conversation with Yahoo Finance “What we’re seeing here is some asset allocation going on into year-end.” He thinks investors are reallocating due to tax considerations.
“While we believe a significant stock market pullback is likely at the start of the new year, we expect the bull market to broaden again starting in the spring, once monetary and fiscal policies become clearer,” said Ed Yardeni of Yardeni Research in his daily QuickTakes commentary.
See Also: During market downturns, investors are learning that unlike equities, these high-yield real estate notes that pay 7.5% – 9% are protected by resilient assets, buffering against losses.
Why It Matters: Tax-loss harvesting is the practice of selling a security that has incurred a loss to help investors reduce or offset taxes on any capital gains income subject to taxation. Investors could indulge in this practice at the end of the year, to save up on taxes.