Following a shaky first quarter for equity markets, the tariffs announced on April 2 were higher than expected, and markets drew down meaningfully in the following days. Our analysis of potential tax benefit1 for the quarter and so far in April is a timely reminder how Parametric can use periods of extreme volatility to harvest losses.
US equity markets began the first quarter on the rise, hitting multiple record highs before declining during the second half of the quarter. The S&P 500® Index finished the first quarter down -4.27%—the first negative quarter since the third quarter of 2023. Tariff-driven volatility in first few days of April has brought the S&P 500® Index into bear market territory, down almost 14% year to date as of April 7.
At Parametric, we believe it’s crucial to monitor direct indexing accounts on a regular basis for loss harvesting opportunities. That helps us take advantage of the periods of volatility when losses present themselves—all while constantly balancing the potential benefits of loss harvesting opportunities with the risk of the portfolio.
Tracking the ups and downs of the equity market
After two years of market performance driven by the Magnificent 7 securities, the tide started to turn in 2025. The S&P 500® posted a positive return of 2.78% in January—notably driven by broader gains across the index, while the Mag 7 securities actually underperformed. The uptrend continued in February, with the market reaching an all-time high on February 19, before declining for the rest of the quarter on concerns over the looming trade war, the slowing US economy and declining consumer sentiment.
One silver lining of the market decline at the end of the first quarter and the days since has been an uptick in tax loss harvesting opportunities. Of course, negative returns aren’t ideal for investors, but they do present a valuable opportunity to harvest tax losses—especially when they occur early in the year.
As a result, we harvested nearly $2 billion in losses across approximately 200,000 trades during the first quarter, delivering a potential tax benefit over $740 million2 to Custom Core investors. Additionally, between April 3 and 7 alone, we harvested nearly $620 million in losses, with a potential tax benefit over $230 million.3
Even with better prospects for loss harvesting in the quarter, accounts with higher levels of appreciation may have more limited opportunities. As volatility continues, Custom Core portfolio managers are monitoring portfolios on a daily basis for the opportunity to harvest losses that may deliver a potential tax benefit to our clients.
Consider the benefits of active tax management
The bottom line
What started as an upturn early in the new year quickly soured, ending with increased volatility and a down market extending into April. Nobody knows where the market is headed next. During uncertain times like these, investors might want to look for a direct indexing partner with experience managing portfolios over multiple market cycles. Parametric’s dual mandate seeks to track an index on a pretax basis and outperform on an after-tax basis—intentionally designed to help investors ride out this volatility storm.
1 The potential tax benefit is calculated by applying the maximum federal rates for short-term and long-term capital gains, which are currently 40.8% and 23.8%, respectively.
2 Source: Parametric, 3/31/2025. The information is provided for illustrative purposes only. Values are aggregated across all equity direct indexing strategies. Only client positions with unverified cost basis were excluded from calculations. Loss calculation is based on the amortized book price minus the sell price, represents historical information and should not be construed as future results. Loss information illustrates the effect to a portfolio and is not representative of, and should not be construed as, performance. There is no assurance that tax loss harvesting will continue in the future. There is no guarantee that any specific account may engage in tax loss harvesting.
3 Source: Parametric, 4/7/2025. The information is provided for illustrative purposes only. Values are aggregated across all equity direct indexing strategies. Only client positions with unverified cost basis were excluded from calculations. Loss calculation is based on the amortized book price minus the sell price, represents historical information and should not be construed as future results. Loss information illustrates the effect to a portfolio and is not representative of, and should not be construed as, performance. There is no assurance that tax loss harvesting will continue in the future. There is no guarantee that any specific account may engage in tax loss harvesting.
Parametric and Morgan Stanley do not provide legal, tax, or accounting advice or services. Clients should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein.
The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.
04.09.2026 | RO 4389044
