A tax-loss trade sets up some stocks for better times, according to Evercore ISI.

Investors are starting the week feeling chipper, with sentiment bolstered by talk of a U.S. - China trade deal.

Adding that to optimism about big tech earnings in coming days, a reasonably healthy U.S. economy, and expectations the Federal Reserve will cut interest rates on Wednesday, means the S&P 500 is likely to register its 35th record high of the year.

However, as analysts at Evercore ISI led by Julian Emanuel point out, even though the Russell 3000 is up 15% in 2025, a similar amount to the S&P 500, there are still 48% of the broader index's constituents that are down year-to-date. History shows the proportion of RUA losers would more likely be 35% given the index's gains, according to Evercore.

Indeed, only 27% of Russell 3000 constituents are up no more than 10% from the post-Liberation Day market trough on April 7, while the index as a whole has rebounded 41% off that low, Evercore calculates. In fact, 16% of the Russell 3000 members are still south of their April trough, and below is a table of losers by sector.

This all "drives home the point that equity investing is as much about 'a market of stocks', as it is 'the stock market'," says Evercore.

And it means that the high proportion of stocks underwater for the year likely makes the mutual fund tax loss season carry greater heft going into the October 31 fiscal year end.

Recall, tax-loss harvesting is a tax strategy in which stocks are sold at a loss to offset capital gains, thereby reducing tax liability. Note: the second tax-loss harvest, for retail investors, occurs mainly in December.

Now, this harvesting can clearly put additional downward pressure on already badly performing stocks. Evercore, though, finds that this means the tax-loss tactics can have a notable positive impact on what happens after October 31.

"Since 1990, the worst performing quintile of Russell 3000 constituents in January through October of the respective year has shown a tendency to outperform during November as incremental selling pressure is alleviated - bouncing 2.7% on average," says Evercore.

This historical trend therefore offers opportunity for traders to secure some above-market gains.

Evercore screened the Russell 300 for what it calls 'Tax Loss Tacticians' - stocks that have recently done particularly badly versus the market and their own year-to-date average prices, but which Evercore rates neutral to attractive.

This produced stocks that are tax harvesting candidates and possible outperformers over the following month. Of their large list, the top 20 by market value are: UnitedHealth, Accenture PLC, Adobe, Comcast, United Parcel Service Inc, ONEOK Inc, Target, The Kraft Heinz Company, Kenvue Inc, General Mills, Constellation, lululemon athletica, Gartner, GoDaddy, Centene, International Flavors & Fragrances, Dow Chemical, LyondellBasell Industries NV, Deckers Outdoor, and Docusign.