By Emily Thornton
Could the worst news for financial stocks be over by October? That’s what veteran financial services analyst Guy Moszkowski at Merrill Lynch (MER) predicts. Below are excerpts from a recent conversation he had with BusinessWeek in which he shared his thinking:
October will probably be the bottom in the cycle. The only reason it wouldn’t be is if this recession lasts much longer than recessions in the past.
Since 1990, financial services stocks have bottomed in October during the industry’s troughs. There’s a reason for that. Right around that time, they are reporting their worst earnings for the cycle. It’s also when mutual funds are doing their tax loss selling. They make their capital distributions in the fourth quarter and that determines the capital gains tax that investors are going to have to pay. Mutual fund managers sell losers to realize losses and to offset whatever gains they have. They sell some of their big losers in October so the tax hit is limited. It happens every time.