As Tax Day approaches, many Americans are scrambling to file their taxes and meet the deadline. But what impact does Tax Day have on the stock market? According to data from S&P Global’s Kensho unit, the first couple of weeks of April are typically rough for the stock market.
During this time, many taxpayers liquidate stocks or tap into their money market funds to fulfill immediate cash requirements. From 2000 to 2016, the S&P 500 Index declined an average of 0.2% during the first two weeks before Tax Day. However, after Tax Day, the market usually bounces back, with the S&P 500 finishing April about 1.7% higher on average.
In fact, from 1998 to 2022, the S&P 500 index enjoyed an average gain of 0.83% in the week following the tax deadline for 19 out of 25 years. This trend suggests that investors may see a positive impact on the stock market after Tax Day.
Financial advisors recommend sticking to a long-term investment strategy and prioritizing contributions to tax-advantaged retirement accounts, such as 401k plans and IRAs. Historically, the S&P 500 has yielded around 10% annual gains, emphasizing the importance of staying invested over time rather than trying to time the market.
Experts like Ed Yardeni, president of Yardeni Research, predict that the S&P 500 could surge 26% by 2026, highlighting the potential for long-term growth in the market. Despite short-term fluctuations, investors are encouraged to focus on distant future outcomes and consider investing in S&P 500 index funds.
As Tax Day approaches, it’s essential for investors to remain focused on their long-term goals and avoid making impulsive decisions based on short-term market movements. By staying invested and following a disciplined investment strategy, investors can navigate the volatility surrounding Tax Day and potentially benefit from the market’s post-tax deadline bounce.
