Market Bottom?
This Week in the Market
After last week's move, several indicators suggest we are approaching a market bottom. The market selloff created oversold conditions across multiple technical measures, while institutional buying has begun to emerge at these lower levels.
While caution remains warranted given persistent economic uncertainties, contrarian investors view the current environment as an opportunity to gradually establish positions in quality companies now trading at more compelling valuations. We believe that the market has bottomed, but if not, that would only provide more attractive valuations in the near future.
Tax Loss Harvesting
Tax loss harvesting describes selling investments that have experienced losses to offset capital gains realized from other investments. This strategy reduces overall tax liability while maintaining desired market exposure.
The process is as follows:
Identify investments in your taxable accounts that have declined in value
Sell these investments to realize the losses
Use these losses to offset capital gains from other investments
If losses exceed gains, use up to $3,000 to offset ordinary income
Carry forward any remaining losses to future tax years
Reinvest the proceeds in similar (but not "substantially identical") investments
Be aware of the "wash sale rule"!
Tax Loss Harvesting Into Higher Beta Stocks
This approach transforms the aforementioned tax strategy into a tactical opportunity. Rather than simply swapping into similar securities, investors strategically upgrade to companies with greater sensitivity to economic recovery (higher beta), potentially amplifying returns when markets rebound.
A prime example A4K Capital currently implements involves selling Microsoft (MSFT) positions showing losses and reallocating to NVIDIA (NVDA). While both are tech companies, NVIDIA's higher beta and stronger AI growth narrative positions it for greater gains during recovery. This maintains our tech exposure while shifting to a higher-volatility position with significant upside potential as market sentiment improves.
This variation undoubtedly increases portfolio volatility, making it most appropriate for investors with greater time horizons and risk tolerance. That said, when implemented thoughtfully during significant market dislocations, it combines immediate tax benefits with enhanced recovery potential. Ultimately transforming market weakness into a powerful catalyst for portfolio improvement.
Disclaimer: We own shares of MSFT, and NVDA as of writing this. The content in this newsletter is for informational and educational purposes only and should not be considered financial, investment, or legal advice. A4K Capital and its affiliates are not responsible for any financial losses or decisions made based on the information provided.
