As Tax Day approaches, many Americans are scrambling to file their taxes and meet the deadline. But how does this annual event impact the stock market? According to data from S&P Global’s Kensho unit, the first couple of weeks leading up to Tax Day are typically “rougher” for the stock market.
During this time, many taxpayers may 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 tends to bounce 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 market after Tax Day.
Financial advisors recommend sticking to a long-term investment strategy and prioritizing contributions to tax-advantaged retirement accounts, such as 401(k) 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 by 26% by 2026, highlighting the potential for long-term growth in the market. As investors navigate the fluctuations around Tax Day, focusing on long-term outcomes and investing in index funds like SPDR S&P 500 ETF (NYSE:SPY) and Vanguard S&P 500 ETF (NYSE:VOO) may be a wise strategy.
Overall, while Tax Day may bring some volatility to the stock market, investors are encouraged to stay the course and remain focused on their long-term financial goals.
