Nobody likes tax season except tax accountants, but those with investments in the stock market have more to be concerned with in April of each year than just making sure their taxes are filed on time. As the tax filing deadline approaches it is nothing unusual to see the stock market flatten out or even take a very slight dive, but just as quickly as it goes down it typically rebounds within a couple of weeks of the passing of the tax filing deadline.
One of the reasons attributed to this market gyration during tax season is that investors withdraw their investment money in order to pay their taxes. Fortunately overall the swing is not huge and only lasts for a short time. In fact, according to Kensho, a data analytics company, the S&P 500 downturn before mid April has averaged 0.2 percent since 2000 and rose again by an average of 1.7 percent. While the change is significant given the short time frame in the overall picture it is not of great concern.
A secondary factor in this short term gyration in the market could be the earnings season which begins around the same time as the tax filing deadline. Traditionally bands and industrials report earnings in the two weeks directly after April 15th causing a reaction that may be contributing to this month-long swing in the stock market. The sectors that seem to be most affected by this tax season gyration are financials, industrials, energy and technology, and surprisingly the larger sectors such as consumer staples and healthcare are largely unaffected.
This occurrence during tax season may appear somewhat odd but as the stock market appears to return to normal each year once April has passed it doesn’t warrant getting too excited about it. Just be aware that it is likely to happen next year too.