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Investors, take note: The stock market could be in for a nice short-term bump.
What the data says
Previous research suggests a tendency for stocks go down in the early weeks of the second quarter, at the tail end of tax season. But a new report shows that the days following the tax filing deadline are a different story.
There are a couple of reasons why this trend might be. The first is that investors who received a tax refund could be injecting that cash right back into the market. Another theory is that earnings season kicks off around the same time.
Here’s what the data, supplied by Bespoke Investment Group, shows about the market’s performance post-Tax Day:
- In 19 out of the last 25 years, the S&P 500 index has traded positively in the week following the tax deadline.
- During this time frame, the index has seen an average gain of 0.83%. That’s almost three times greater than the one-week median gain throughout the year.
Keep in mind
Overall, the report is a positive signal for investors. However, it’s worth noting that, according to Bespoke, the stock market saw a massive dip in the week following Tax Day last year. The S&P lost over 2% that week, making for the second-worst post-tax season week in the 25-year data set (the worst year was 2018, with a loss of nearly 3%).
Around that time a year ago, the Federal Reserve had just implemented its first interest rate hike since 2018. Rate hikes, which are used by the Fed to rein in inflation, tend to have investors thinking more cautiously about their finances. Those same rate hikes — if history is any indication — could potentially cause a recession, giving investors plenty to worry about this year.
All in all, the next week could be a toss-up: History suggests gains, but the issues that helped to upend the trend last year are still causing investor anxiety today.
Of course, the old adage says that past performance is no indication of future gains, and investors can find virtue in thinking of long-term prospects for stocks, rather than trying to predict short-term movements.