Tax Management Update – Q1 2024

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The number of stocks in the S&P 500^® posting positive returns during Q1 came in at approximately 73% – a good deal higher than the 64% that we saw for the full year 2023.

Equity markets began 2024 with very strong performance with stocks rising dramatically during the first quarter. The good-sized increase in markets was driven by a number of factors, including strong corporate earnings and a stabilization in both interest rates and inflation. Speculation around Fed rate cuts and interest rates, more generally, remains a key variable. The market is still expecting rate cuts later in the year, although the frequency and aggressiveness of rate reductions will likely be less than previously forecast.

Tax code changes likely on hold
Meaningful change to the tax code will likely not take place until after the election and the range of potential outcomes is quite wide depending on who wins. A Democratic sweep would likely lead to an increase in taxes on the wealthy and corporations. A Republican sweep would potentially see a very different outcome, with lower tax rates on corporations and less dramatic personal tax rate changes. A divided government might see little to no change, given the differing views and priorities.

More winners than losers
The number of stocks in the S&P 500^® posting positive returns during Q1 came in at approximately 73%, which is a good deal higher than the 64% figure that we saw for the full year 2023. Given this broad-based strength in the market, we saw the S&P 500^® post a 10.6% return. In the past couple of decades, in years where the market is up 10-15% the number of stocks with positive returns has tended to be around 75%. So unlike 2023 where a relatively small number of mega cap stocks drove performance, Q1 strength was a good deal more evenly distributed. With that said, some of the highfliers from the past couple of years continue to post excellent returns, with NVIDIA (+82%) and Meta (+37%) performing especially well year to date.

Winners, losers, and total return for the S&P 500^® by calendar year (3/31/24) 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 shorter supply
Q1 2024 represented a somewhat muted period from a tax loss harvesting perspective. Stocks generally ended 2023 at elevated levels, and then a broad-based advance during the first quarter tended to move them up higher. Dispersion of returns across individual companies came down somewhat, with only 27% of S&P 500^® companies falling in value over the course of Q1. This company-specific dispersion (when accessed via a separately managed account) still provides some opportunities for harvesting, as investors oftentimes have at least some exposure to underperforming names. This harvesting opportunity varies 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 have some opportunities to harvest losses in Q1.