By Gary Aiken | August 6, 2026
July saw single stock volatility rise to an extreme. In addition, it saw volatility in individual stocks widely dispersed and relatively uncorrelated to the S&P 500 Index. What does that mean? It means two things. First, many individual stocks in the index had wild rides in July, while the market overall didn’t seem to have a particularly interesting month. The S&P 500 Total Return Index was down a whopping 0.06%.
The Chart of the Month shows the VIX (CBOE Volatility Index) and the VIXEQ (CBOE S&P 500 Constituent Volatility Index). The VIXEQ since measurement began in June 2014 has always been higher than the VIX. This makes intuitive sense. Any individual stock is going to be more volatile than a group of stocks. This is how and why diversification works.
But the difference (spread) between VIXEQ and VIX is also instructive. It tells us when stock correlation is likely to be high or low. The lower the spread, the more the average stock is likely to have volatility like the index. But a high spread means the average stock volatility looks nothing like the market. That’s what happened in July when the spread hit the highest level since measurement began.
Market commentators have given many reasons why they think record dispersion occurred in July. Among these are geopolitics, the Fed, interest rates, changes to the forecast for AI spending, Korean investor stock margin calls, the amount of leverage by individual investors and hedge funds, etc. For me, the cause isn’t the most important thing. What matters is what we do when presented with this historic dispersion.
The Spread Between Single Stock and Index Volatility Hits a Record
July’s excess volatility gives our clients a few opportunities. The opportunity that this month’s commentary will focus on is tax-loss harvesting. We are more than halfway through 2026 and soon enough we’ll be thinking about how to offset capital gains and ordinary income through the realization of losses. In some prior periods, we haven’t had a lot of losses to give. But with this increased single stock volatility comes the opportunity to take some losses as stock variance grows.
Tax-Loss Harvesting (TLH) is the process of identifying positions or tax-lots where shares of stocks you own are trading below your purchase price. Those lots are in an unrealized loss position. If you sell those shares, you will realize the loss and be able to use those losses to offset gains and lower your tax burden in the current year. If you have sufficient losses, you may even be able to carry those losses into the future to offset future capital gains. The downside (besides transferring your paper losses into actual losses) is that now you have cash to put to work.
The second part of TLH is buying some other investment. But what to buy? At Concord, our approach is to buy exchange-traded funds (ETFs). We do this for a couple of reasons. First, the ETFs are identified in advance and put into our trading systems because they have a high allocation to that stock, are generally correlated with that stock’s performance historically, and maintain industry sector exposure. Second, one of the things we talk about to clients is that our stock portfolios benefit not just from picking good ideas but avoiding truly bad ones – to the extent that’s possible. Buying a stock we don’t particularly want to own, just because it’s like one we did want to own isn’t appealing. The ETF gives us temporary exposure without idiosyncratic (single stock) risk – there’s safety in crowds.
The third part of TLH is buying back the original stock after the wash-sale period has ended. The IRS rules that if you sell an investment, you must wait 31 days before you can buy that investment back. Also, the thing you buy in its place can’t be substantially the same as the thing you sell. So, our ETF accomplishes the second part, while not forcing us to take idiosyncratic risks during those 31 days.
For taxable accounts, we offer two flavors of Tax-Loss Harvesting (TLH). One is ad-hoc and the other is what we call “Aggressive” TLH. Ad-hoc is discretionary in nature. We watch our portfolios for opportunities to make TLH trades. Opportunities like when single stock volatility goes higher like during July. This is also appropriate for clients who do not like to see lots of transaction volumes on their monthly statements. Aggressive TLH is more systematic. The frequency of automated TLH is much higher and the threshold for losses to realize in dollars and percentage terms is lower. This doesn’t necessarily mean that you’ll have more losses, but it does mean that if those losses are available, they will be realized for your tax benefit.
Each client’s needs and preferences are different. Ask your Concord Wealth Partners advisor about your situation and which version is right for you. No one likes to take losses, but if you’re an investor in the stock market, you’re going to lose sometimes. Luckily, you can use those losses to offset gains or other income and lessen that other thing we hate but can’t avoid – taxes!
Author
Gary Aiken
Chief Investment Officer
Concord Asset Management
Gary Aiken is the Chief Investment Officer for Concord Asset Management and is responsible for macroeconomic analysis, asset allocation, and security selection, as well as trading and investment operations.
Gary has over 23 years of investment experience and holds an undergraduate degree in economics from the University of Maryland and an MBA from The George Washington University School of Business.
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