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Stocks usually win in the week after tax day

Key Points
  • Stocks typically outperform in the two-week period following the April 15 tax day, with the S&P 500 moving higher 75 percent of the time with an average gain of nearly 1 percent over the past 20 years. 
  • In the two weeks after tax day, the S&P does even better and in the last 20 years it has averaged a gain of 1.5%.
  • Last year was an outlier, with the S&P 500 declining 2.9 percent in the week after the federal tax deadline, making it the weakest post-tax day week since 1990.
Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on January 10, 2019 in New York.
BRYAN R. SMITH | AFP | Getty Images

Stocks were slightly lower Monday, but they could bounce back for a fairly decent gain over the next two weeks if the market follows a common post tax-day move.

The over the past 20 years has averaged a near 1 percent gain in the week following the federal tax filing deadline and has been higher 75% of the time, according to Bespoke Investment Group. By the second week after April 15, the S&P has been up 1.5% and was higher 75% of the time.

The positive pattern did not work out after tax day in 2018, when the S&P lost 2.9 percent in the week after April 15, its worst one week post-tax day return since 1990. In the past 20 years, the worst performance was in 2002 when the S&P was down 3.4 percent after the second week.

The best performance was in 2001, when the S&P was up 3.8% after one week and nearly 6% after two weeks.

"April seasonally is a strong month. You get increased spending from the refunds coming through, but it's more of just a seasonal phenomena," said Paul Hickey, co-founder of Bespoke. "April's a real strong month. It's the end of the six month stretch, where returns tend to be positive."

Right after April comes the ' "sell in May and go away" period for stocks. That's May through October when the market does not do as well as the previous six months. For instance, the Dow was down 0.6 percent on average in the period May 1 through Oct. 31, going back to 1950, according to the Stock Trader's Almanac. In the Nov. 1 to April 30 period over the same years, the Dow gained an average 7.5%.

"April is a little tricky. It's when earnings generally start to come out," Hickey said. "The Q1 reporting period has historically yielded positive returns for stocks." He also said there were a good number of downward revisions to first quarter earnings.

"Negative revisions have historically been good for stock market gains," he said, noting companies tend to have a lowered bar to beat.