The January Snap-Back: Tax-Loss Recovery Plays for 2026

The end-of-year tax-loss harvesting frenzy has long been a catalyst for market anomalies, but for savvy investors, it also creates opportunities. As investors sell underperforming stocks to offset capital gains, the resulting price pressure often distorts valuations-particularly in the Russell 3000, where smaller and mid-cap names are more susceptible to short-term volatility. However, history suggests that this artificial selling pressure typically unwinds in January, triggering a measurable rebound. Evercore ISI's "Tax-Loss Tacticians" screen, which identifies fundamentally sound stocks in the bottom quintile of the Russell 3000, offers a roadmap for capitalizing on this cyclical phenomenon. With 2026 on the horizon, the stage is set for a strategic reentry into these beaten-down names.

The Tax-Loss Tacticians Methodology: A Historical Edge

Evercore's strategy is rooted in a simple yet effective premise: stocks that underperform the market during tax-loss harvesting periods often rebound sharply once the selling subsides. According to a report by Evercore ISI, . This pattern, dubbed the "," reflects the natural correction of prices after year-end tax-driven selling. For 2025, the firm highlighted names like Fiserv (FI), Lululemon (LULU), and Deckers Outdoor (DECK) as prime candidates for this rebound. These companies, while battered by sector-specific headwinds or broader market rotation, maintain robust cash flows and durable business models.

Market Dynamics: A Perfect Storm for Tax-Loss Opportunities

The current environment amplifies the potential for tax-loss recovery plays. As of November 2025, , driving capital gains distributions across U.S. equity funds-particularly in growth and mid-cap segments, . This has created a pressing need for tax-loss harvesting, with investors in taxable accounts aggressively selling losing positions to offset gains. However, the same report notes that opportunities to realize losses persist, especially in smaller-cap and volatile sectors, where earnings growth has lagged the broader market.

Compounding this dynamic is the divergence between growth and value stocks. The Russell 3000 Growth Index has outperformed its Value counterpart by a wide margin, . While this reflects investor optimism around AI-driven productivity and high-growth tech firms, it has left many fundamentally sound but slower-growing companies undervalued. For instance, Fiserv, a fintech leader, has faced pressure from regulatory uncertainties and margin compression, yet its recurring revenue model and dominant market share remain intact. Similarly, Lululemon's recent pullback reflects broader consumer caution, but its strong brand equity and expanding product lines position it for a rebound.

Valuation Divergence and Policy Uncertainty: A Strategic Entry Point

Despite the Russell 3000's overall gains, valuations remain stretched. Forward P/E ratios for the index have expanded beyond historical averages, driven more by speculative optimism than earnings growth. This creates a fertile ground for tax-loss harvesting, as investors seek to rebalance portfolios ahead of 2026. Meanwhile, the Federal Reserve's anticipated dovish pivot. However, lingering risks such as inflationary pressures and potential government shutdowns underscore the need for defensive positioning.

The Tax-Loss Tacticians screen offers a disciplined approach to navigating this landscape. By focusing on the bottom quintile of performers, investors can access stocks that are temporarily oversold but retain strong fundamentals. For example, Deckers Outdoor's recent decline stems from inventory challenges and shifting consumer preferences, yet its premium footwear brand and global distribution network remain competitive. Similarly, .

The January Snap-Back: A Case for Immediate Action

The historical data and current market dynamics converge on a clear thesis: the January Snap-Back is not just a statistical anomaly but a predictable outcome of tax-loss selling. As the prevents immediate repurchasing of sold securities, the post-December price dislocation creates a window for strategic entry. For investors willing to tolerate short-term volatility, the Tax-Loss Tacticians screen offers a curated list of names poised to benefit from this correction.

With 2026 approaching, the time to act is now. By locking in losses before year-end and positioning for a January rebound, investors can align with both historical trends and the structural forces reshaping the Russell 3000. The key lies in identifying companies like Fiserv, Lululemon, and Deckers Outdoor-names that have been unfairly punished by market dynamics but remain fundamentally sound.