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The stock market could face pressure for the next two weeks heading into tax day.
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Fundstrat highlighted that stocks see choppy performance heading into tax filing day after a strong prior year.
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“The reason this relationship exists is that investors need to raise cash to pay capital gains,” the firm said.
The stock market could be poised for choppy trading action over the next two weeks heading into the April 15 tax filing deadline.
That’s according to Fundstrat’s Tom Lee, who highlighted the historical trading action of stocks around the tax deadline following a strong year of gains.
“There is likely some artificial tax-related selling pressure on stocks this week and into next week,” Lee said in a note to clients on Wednesday.
Fundstrat crunched the numbers and found that since 1945, when stocks rise more than 15% in the year prior, the market fares poorly into tax-day with a win-ratio of only 52%.
That compares to a win-ratio of 100% around the tax-filing deadline when stocks are down in the prior year.
After the S&P 500’s strong 24% gain in 2023, investors are now facing some big tax bills if they sold appreciated stocks last year.
“The reason this relationship exists is that investors need to raise cash to pay capital gains. Hence, stocks come under selling pressure into tax day,” Lee said.
But Lee doesn’t expect the potential weakness to persist and instead views it as a buying opportunity for investors.
“This is a short-term mechanical issue and will dissipate when tax day passes. In other words, take advantage of this short-term distortion,” Lee said.
Ultimately, Lee sees the weak start to the second-quarter as a buying opportunity for investors and recommends stocks with broader themes driving them, like the AI trade, the GLP-1 weight loss trade, and financials and industrials.
“Bottom line, we are buying this short-term dip,” Lee said.
Read the original article on Business Insider