5 Top Stocks To Gain As The Tax Season Draws To A Close

There are many ‘calendar trends’ in the financial markets which indicate its outperformance or underperformance in a given time frame. The common axioms are“Sell in May and go away”, the “January Effect” and the “January Barometer”, to name a few.

These calendar trends do have a logical basis in contrast to some random time frame showing gains and losses. For instance, markets typically scale north in two weeks after the Tax Day, which is on Apr 17 this year. This is because money flows into the market as a significant number of people start funding their Individual Retirement Accounts (IRA) in order to receive tax deduction.

Tax Day, thus, brings a seasonal trend where you can make some gains, with a few sectors traditionally showing an improvement.

Apr 17 is Tax Day This Year: Here’s Why

Since 1955, Tax Day has been observed on Apr 15. But, if the date falls on a Saturday or Sunday, the filing of federal income tax returns is pushed to the next business day. This means that tax day should have been on Monday, Apr 16 this year.

However, the Emancipation day holiday unique to Washington D.C. fell on Apr 16, postponing the tax filing deadline this year. District of Columbia observes Emancipation day, which marks the freeing of slaves in Washington in 1892. This makes Apr 17 the closing date for filing taxes in the United States.

Tax Day Trade

Tax Day is always special for the stock market. Estimates are that 15% to 33% of all tax filers wait for this day to fund their IRAs. After all, IRAs are a basket of various asset classes, including stocks in which individuals invest money to prepare for retirement.

The average daily gain, by the way, for the S&P 500 on the Tax Day has been around 0.3% over the past 10 years. But, don’t dismiss 0.3% as meager because it is nearly 7 points on the S&P that equates to an annualized gain of around 75% over the average 252 trading days in a year.

In fact, April has always been one of the best months for the S&P. The broader index in the past 10 and five years has climbed about 90% and 80% of times this month, respectively.The benchmark index, however, this time around is down so far in the month. So, this indicates that some sort of a bounce back may take place during the remaining of the month that will push the index back into positive territory.

End of Tax Season Throws Open Buying Prospects

The stock market, historically, tends to gain momentum in the two weeks following the Tax Day. Conversely, stocks tend to remain flat or somewhat down in the first two weeks of April.

The S&P has been nearly down on an average 0.2% in the first two weeks of the month, while it was up around 1.7% on an average during the weeks following the day, per data analytics firm Kensho. That’s a positive swing of about 2% on average for the S&P 500. Similarly, certain sectors like technology, financials and industrials have notched average gains of around 3%, 1.7% and 2.2%, respectively.

Profit From Tax Season With These 5 Stocks

Given that the aforesaid sectors are poised to make the most of the upcoming bullishness, investing in stocks from the same will be judicious. And why not? The Trump administration’s initiative to cut tax rates has provided the much-needed windfall to tech companies, while a recent move by the Fed to raise rates bodes well for financials. Firm business investment, in the meantime, helped factories expand at a record pace. Manufacturers are also on a hiring spree and are paying more than other jobs, reflecting sustained strength in the sector.

We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Original post

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Written By: Zacks Investment Research