The S&P/ASX 200 Index (ASX: XJO) hasn't had a great year so far, following a very strong run in 2021, when the benchmark index gained 13%.
Under pressure from surging inflation and a spate of interest rate hikes from the Reserve Bank of Australia, the ASX 200 is down 5% as we wind down 2022.
While that's nothing to cheer about, Aussie stocks have broadly outperformed their US counterparts this year.
Having significantly outperformed the ASX 200 in 2021, the S&P 500 Index (SP: .INX) has fallen 17% in 2022.
Tech shares, often priced with future earnings in mind, have been hit even harder by spiking interest rates. That's seen the Nasdaq Composite (NASDAQ: .IXIC) tumble 30% year to date. A fall that's largely in line with the 31% decline in the S&P/ASX All Technology Index (ASX: XTX) since 4 January.
So, why could the horror year for US stocks see the ASX 200 charge higher in early 2023?
We're glad you asked!
How could this spur an early 2023 rally in ASX 200 shares?
Unlike Australia, the tax year in the US is aligned with the calendar year.
That means the end of December marks the end of the financial year for US investors.
It also means that many investors who've found themselves holding stocks that are deep in the red are selling them before year-end for the tax offsets. That's similar to Australia, where losses made on your ASX 200 investments can be deducted from other income taxes owed.
Now, this occurs to some extent every year.
But with US stock markets having suffered their worst losses in more than a decade, the pace of selling could be at record levels.
That's according to Peter Essele, head of portfolio management at Commonwealth Financial Network. Essele also points out that after the selling action in the final month of 2022, equities could enjoy a strong rebound in early 2023.
According to Essele (quoted by Reuters):
This is the first time that investors are looking at double-digit declines in about 13 years, and we've never seen this level of tax-loss selling before. That could result in a pretty strong first couple of months as people start re-entering long-term assets.
Now he's specifically addressing US markets here.
But with history as our guide, if the S&P 500 kicks off 2023 with a strong run higher, ASX 200 investors should enjoy some resulting tailwinds.
