There is no shortage of systematic distortion in the market as we kick off Q4 2021 earnings season. As we have in the past, we will highlight the most crowded stocks from both a long and short perspective as earnings calls begin. Crowded stocks can exhibit exacerbated pricing pressure when material information reaches the market. In addition, earnings releases can increase price volatility, making earnings a strong catalyst for crowded names.

This week, we’re temporarily pausing our “Where’s the Alpha?” series to help our community analyze the potential impact of the Fed’s hawkish surprise earlier this week.

The Fed’s Dec 14-15 meeting minutes became publicly available on Tuesday, revealing that the Fed intends to accelerate the reduction of the bonds held on its balance sheet. While most observers expected measured rate increases, the runoff in the balance sheet was a shift in its prior position and signaled a more hawkish stance. As a result of the news, the NASDAQ Composite fell 334 bps, and the S&P 500 fell 194 bps during Wednesday’s market hours. The NASDAQ sell-off represented a three standard deviation downward move in the index.

The transition from one year into the next offers opportunities for reflection and learning. As we mark the end of a year filled with tumult and tribulation, we can use past patterns to help inform where we may find new successes in the future. Over the next few weeks, we’ll be looking back to 2021 to help understand what the alpha opportunity looked like for fundamental investors and help inform how to better identify alpha opportunities in 2022.

‘Tis the season for tying up loose ends, last-minute gift searching, and roasting chestnuts over open fires.

Year-end is invariably a time of increased buzz around tax-loss harvesting as investors across all corners of the market look to minimize tax liabilities. Traditional tax-loss harvesting strategies typically include selling losers to offset gains and lower the overall capital gains tax liability. These strategies can also extend to selling winners to lock in gains offset by the losses incurred from selling the losing stocks.

Given the widespread nature of tax-loss harvesting, the price action that occurs at year-end, as a result, could create substantial crowding effects, of which investors should be aware. So, in this week’s Factor Spotlight, we set out to answer the question of whether or not a “tax trade” effect exists. And, if so, what does the “tax trade” look like from the eyes of the factor models?