Zinger Key Points
- Jim Cramer hints that year-end sell-off was a result of investors fearing higher capital gain tax.
- Steve Sosnick thinks investors are reallocating considering the tax allocations.
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.
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: Dollar Strength To Be Driven By Trump’s Deregulation, Tariff And Tax Policies In 2025 After A Strong 2024
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.
According to the IRS, net capital gains are subject to varying tax rates depending on an individual’s overall taxable income.
- 0% Rate: Applies to single filers with taxable income up to $44,625, married filing jointly up to $89,250, and heads of household up to $59,750.
- 15% Rate: This applies to income within specific brackets above the 0% threshold, varying by filing status.
- 20% Rate: This applies to income exceeding the 15% rate bracket thresholds.
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