Tax season—and more specifically tax returns—will inject an extra $150 billion into the stock market by the end of March, according to estimates by Wells Fargo. When a “buy” signal like that arrives, the S&P 500 goes up 100% of the time, by an average of 13% over the next six months, according to analyst Ohsung Kwon and his colleagues.
“We expect $150 billion of liquidity injection by March-end, as 64% of tax returns get issued. Additional savings from bigger tax returns (~$820 on average), especially for the high-income consumer (~$9K for the top 1% of earners), will flow back into equities,” the analysts advised clients. “Historically, March has been the strongest month for equity ETF and mutual fund inflows. March and April have also been strong months for the personal savings rate.
“Domestic liquidity is down $105 billion over the past four weeks, since the peak in mid-January, due to tax seasonality. But the seasonality is about to turn positive, at least through March-end, likely triggering a ‘buy’ signal on our Liquidity Indicator.”
