Investors, take note: The stock market may be in for a pleasing short-term bump.

Data from Bespoke Investment Group shows that Tax Day historically tends to precede every week of healthy performance for stocks.

What the information says

Recent Bespoke Investment research suggests an inclination for stocks to perform weaker through the early weeks of the second quarter, on the tail end of tax season.

Just how weak the market performs relies on first quarter performance; if the S&P 500 is down going into the second quarter, it averages a rally of just 1.4% in the first two weeks of April. If the S&P 500 is up at the highest of the first quarter (prefer it’s that this 12 months), early April returns are prone to be a much milder 0.2%.

“Whether it’s tax-related or not, there could also be some historical precedent for April to get off to a weak start, especially in years when the first quarter was positive,” the company wrote in its note Monday morning.

Fear not, though. One other report from the company shows that the times following the tax filing deadline in mid-April are a definite story.

There are a number of the reason why this trend is maybe. The first is that investors who received a tax refund may be injecting that cash right back into the market. One other theory is that earnings season kicks off across the equivalent time.

Here’s what the information, supplied by Bespoke Investment Group, shows with regard to the market’s performance post-Tax Day between 1998 and 2022:

• In 19 out of 25 years, the S&P 500 index has traded positively inside the week following the tax deadline.
• During this time-frame, the index has seen a median gain of 0.83%. That’s almost 3 times greater than the one-week median gain all 12 months long of 0.31%.

Take into accout

Overall, the report is a positive signal for investors. Nonetheless, it’s value noting that, the stock market has seen dips inside the last two years following Tax Day. In 2022, the S&P lost over 2% during this era, making for the second-worst post-tax season week inside the 25-year data set (the worst 12 months was 2018, with an absence of nearly 3%). In 2023, the S&P lost about 0.1% inside the post-tax season week.

Right before that giant decline two years ago, the Federal Reserve had just implemented its first rate of interest hike since 2018. Rate hikes, which might be utilized by the Fed to rein in inflation, are prone to have investors considering more cautiously about their funds. Those self same rate hikes — if history is any indication — could potentially trigger a recession, giving investors plenty to stress about. To today, the Fed has not lowered rates of interest, likely accounting some for last 12 months’s slight decline.

All in all, the next week may be a toss-up: History suggests gains, but the issues that helped to upend the trend thus far two years are still causing investor anxiety today. March’s inflation report threatens to take care of this trend going, too; with inflation coming in hotter than expected, the Fed is erring toward keeping rates higher for longer and risking a troublesome landing for the economy.

Actually, the old adage says that past performance shouldn’t be indicative of future gains, and investors can find virtue in considering of long-term prospects for stocks, quite than attempting to predict short-term movements.

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