As the dust settled from Tax Day, U.S. equities found themselves nearly approaching correction territory. Amid concerns over tariffs and other global trade frictions, the S&P 500^® has fallen 5.6% YTD through April 28, 2025. In Exhibit 1, we see that The 500™ experienced its most significant drop in 2025 of nearly 6% on April 4, followed by a remarkable rebound on April 9 when it gained 9.5%. Although we’ve recently had multiple consecutive days of gains, these swings underscore the substantially challenging environment market participants are navigating, with the benchmark ending 35 out of 79 trading days in negative territory.

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While this might seem like a cause for concern, there may be a silver lining: the opportunity for tax optimization. This approach allows market participants to potentially offset capital gains with losses, reducing their tax liability and diminishing the financial impact of a volatile market.

Such opportunities exist not only at the overall market level, but at the constituent level too. In fact, 66% of S&P 500 constituents have posted negative returns YTD through April 23, 2025 (see Exhibit 2), which represented about 75% of the total index market capitalization over the period.

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When we zoom out, however, it becomes apparent that this is not unprecedented compared to historical down markets. Exhibit 3 captures this broader perspective and displays the percentage of stocks that experienced positive and negative annual returns from 2002 to 2024, including through YTD 2025. Over the last 23 years, there were four years that The 500 finished in negative territory—2002, 2008, 2018 and 2022. In those years, the average percentage of down stocks was 74%. Across all years, excluding 2025, the average percentage of down stocks was roughly half of that, about 36%.

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As we move forward in 2025, a focus for some investors may be on navigating the complexities of the market while simultaneously maximizing the benefits of tax-efficient strategies. The current downturn, while daunting, could present opportunities for those who are prepared to take advantage of ETFs and direct indexing strategies for potentially different tax outcomes than traditional active mutual funds. By staying informed and proactive, investors may hope to turn the challenges of the market into opportunities for tax savings.

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