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Tax-Loss Season: A Guide To Finding Quality Stocks At Discount Prices

Despite a somewhat volatile year, stocks enter December just about where they rung in the year. However, 2015’s basically flatline performance represents the first year in the last four, where investors collectively won’t have robust gains to cheer about, assuming no massive rally before the ball drops. Even though the S&P 500 hasn’t wavered much until now, it is likely that do-it-yourselfers might be sitting on some substantial losses if they are holding certain stocks. Many marquee-name large-cap companies with household familiarity have taken it on the chin during 2015. Here is a sampling of stocks that have experienced a rather rough year, with their YTD returns as of the last day of November: Whole Foods (NASDAQ: WFM ) – down ~ 40% Wal-Mart (NYSE: WMT ) – down ~ 30% Nordstrom (NYSE: JWN ) – down ~ 30% IBM (NYSE: IBM ) – down ~ 14% Chevron (NYSE: CVX ) – down ~ 20% Procter & Gamble (NYSE: PG ) – down ~ 17% American Express (NYSE: AXP ) – down ~ 22% While now’s a good time to reassess one’s commitment to companies whose market values have tanked, it may also be a good time for those who don’t own them to consider adding them. Let’s look into why. Understanding Tax-Loss Selling As we approach the end of the year, it is common, if not likely, for stocks that have been roughed up during the year to experience even further, artificially inflated inspired, selling. Due to the calendar-year way in which Uncle Sam evaluates our capital gains and losses, most investors will try to balance out gains taken prior in the year with losses. Selling a stock that has depreciated since time of purchase is a sound way of decreasing one’s tax bill come April 15. Since most investors won’t wait until the last minute to do this, it is possible that we are in the midst of tax-loss-inspired selling right now. If I have a $2,000 gain in stock ABC that I sold back in May, but I have a $2,000 loss in IBM, I can sell IBM to offset the gain I took on ABC back in May. Holding period (greater or less than 1 year) will determine specifically how these gains and losses can be offset. And one’s tax bracket will determine the ultimate amount that an investor might have to pay on gains. In any case, taking the time to evaluate your personal capital gains situation is a savvy, necessary move come the end of the year. Tax-Loss Selling Strategies To avoid what’s known as the “wash sale” rule, and keep a position in a stock they like, some investors will “double down” on a losing position in November (or earlier), then sell half the position before the end of the year. The wash-sale rule prohibits the taking of a loss on any security which was purchased 30 days before or after the loss is taken. This strategy enables the investor to lock in the loss and keep the same position heading into the next year. Another strategy may be to agree to part ways with a losing stock, lock-in the loss, but immediately buy shares of another company that does business in the same space or that tends to trade in a similar manner. This is sometimes referred to as a stock swap or stock rotation. One might say, I’m done with Wal-Mart, a mass merchant, but rotate the sale funds over into a stock like Whole Foods, a food-focused retailer. Or the investor might decide retail looks miserable altogether, selling Wal-Mart as a result, then buying into a totally new sector. Whatever the decision, the goal is to minimize calendar year capital gains by December 31, limiting tax liability come April 15. Tax-Loss Buying Strategies Simply put, if a stock is getting hit unnecessarily come the end of the year, it may turn into a real bargain, even if it is experiencing some near-term problems. Alongside your holiday shopping list, make a list of some 2015 “losing” stocks you’d like to own, pick a buy point, set a buy-limit order, and hopefully get your order filled. If the stock looks like a bargain now, don’t wait – the sale may not last! While tax-loss season is generally focused on selling strategies, it’s the buyers that may have the most to gain out of tax-loss season! Original post .

Can Copper ETFs Rebound After Chinese Production Cut?

Thanks to a surging dollar, global growth worries and supply glut, industrial metals have been hammered badly this year. In particular, copper was the hardest hit by worries about slowing growth in China. This is especially true as China is the biggest consumer of the metal and accounts for about 45% of copper demand. Additionally, the red metal is used in global construction and manufacturing activities, which are experiencing a slowdown. Notably, copper plunged to a six-year low, losing nearly 30% so far this year. Even the announcement of production cuts in the weekend by Chinese producers did not yet help the price to stabilize. Production Cuts In order to counter slumping prices, 10 leading Chinese copper producers plan to cut their output by 350,000 metric tons in 2016, or about 5% of China’s annual production. The move could ease fears of a protracted supply glut and give some support to copper prices. However, many traders believe that the supply cuts are too small and insufficient to rebalance the metal market amid disappointing macro fundamentals. Outlook Still Bleak Weak economic activities in China have been weighing on copper demand and are expected to do so in the coming months as well. This is because manufacturing activity in China shrunk for the fourth straight month in November to the 3-year low, underscoring persistent weakness in the world’s second-largest economy. Most of the other developed and developing economics are also experiencing sluggish growth which is weighing on the global demand for copper. Adding to the woes is the prospect of a rates hike in the U.S. later this month that has dampened the appeal for metals as a store of value owing to a strengthening dollar. Given the bleak fundamentals, it seems that Chinese production cuts are not enough to reduce the global supply glut and drive copper prices upward. So, investors should currently avoid trading in copper ETFs. In addition, these funds have an unfavorable Zacks ETF Rank of 4 or ‘Sell’ rating, suggesting that these will continue to underperform in the months ahead. iPath Bloomberg Copper Subindex Total Return ETN (NYSEARCA: JJC ) The ETN tracks the Bloomberg Copper Subindex Total Return Index, which seeks to deliver returns through an unleveraged investment in the futures contracts on copper. The index currently consists of one futures contract on the commodity of copper (currently the Copper High Grade futures contract traded on the COMEX). The product charges investors 75 bps a year in fees, and has a lower level of AUM of $34.2 million. It trades in paltry volume of about 20,000 shares a day on average. The ETN shed nearly 30% so far this year. United States Copper Index Fund (NYSEARCA: CPER ) The fund seeks to track the performance of the SummerHaven Copper Index Total Return, plus interest income from CPER’s holdings. The index provides investors with exposure to front-month copper futures contract traded on the on the NYSE Arca. The product has amassed $2 million in its asset base while sees paltry volume of about 1,000 shares a day. Expense ratio came in at 0.65%. The ETF has lost 27.5% in the year-to-date time frame. iPath Pure Beta Copper ETN (NYSEARCA: CUPM ) This note seeks to match the performance of the Barclays Copper Pure Beta Total Return Index. Unlike many commodity indexes, this can roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology. This approach results in less contango, which is an important factor, as shifting from month to month in contracts can eat away returns in an unfavorable market situation. The note has amassed $1.6 million in its asset base and trades in a meager volume of about 200 shares a day. Expense ratio came in at 0.75%. CUPM is down 27% so far this year. Original Post

XLU: This Sector Is Unhappy About Higher Rates

The Federal Reserve is expected to raise its benchmark lending rate in coming months. Utilities stocks have thus trended lower due to their bond-like qualities, and dependence on debt financing. As the Fed tightens its policy, XLU presents an attractive short opportunity. While the stock market as a whole may not correct due to the U.S. rate increase, Utilities Select Sector SPDR (NYSEARCA: XLU ) will likely show weakness. The utilities sector is heavily dependent on interest rates for two reasons. First, utilities use a lot of debt financing to run its operations. This means that when interest rates rise, their debt servicing costs increase, and thus weigh on bottom line growth. Another factor is that utilities companies are generally slow growing, and thus return earnings to shareholders in the form of a dividend to attract investment. This aspect gives utilities stocks, as well as the broader XLU a bond-like asset quality. Therefore, when interest rates rise, share prices of utilities stocks decline. The chart below shows the correlation between the U.S. 10-year Treasury yield compared to XLU over the last five years. As the Federal Reserve began slashing its lending rate as a result of the financial crisis, the 10-year yield fell from over 3.6%, to a bottom of 1.375%. This drastic decline was the catalyst for a sharp move higher in XLU, as well as broader U.S. equity markets. When the Fed made it evident in 2013 that it was planning on ending its stimulus measures, interest rates rose, while XLU consolidated tightly, but then utilities resumed their uptrend as an actual rate hike was found to be years away. Now, however, as markets prepare for an actual U.S. lending rate, XLU is experiencing volatility again, and has underperformed the broader market throughout 2015. With the Fed likely hiking rates over the next few months, utilities companies, such as– NextEra Energy (NYSE: NEE ), Duke Energy (NYSE: DUK ), Dominion Resources (NYSE: D ), Southern (NYSE: SO ), and American Electric Power (NYSE: AEP )-have all begun to trend lower. Their operating environment looks to become more challenging amid higher rates, while investors find the sector’s dividends less attractive relative to higher prevailing interest rates. For this reason, XLU and its component companies look to be interesting short opportunities in coming months as the Fed tightens policy measures. (click to enlarge)