Historical data shows Dow Jones gains 1.3% in early April, influenced by tax season liquidity ….. Historical April Stock Performance
Over the past seven decades, the U.S. stock market has shown a tendency to perform well during the first two weeks of April. This pattern, attributed to increased liquidity in the financial system around the U.S. tax payment deadline on April 15, has been observed since the tax-filing deadline was established on this date in 1955. The Dow Jones Industrial Average (DJIA) has, on average, produced a gain of 1.3% in the first half of April, compared to an average gain of 0.3% in the first half of other months. This difference in performance is statistically significant at the 90% level, suggesting a notable trend, though it falls short of the 95% confidence level often relied upon by statisticians.
Tax Season Dynamics
As the federal tax deadline approaches, the U.S. Treasury typically experiences a substantial surplus in April, contrasting with other months where government spending exceeds tax revenue collection. This influx of funds to the IRS, due to tax payments, is believed to influence the Federal Reserve's open-market operations, potentially increasing liquidity in the financial system to accommodate these payments. While the specific actions of the Federal Reserve are not publicly disclosed, the correlation between tax season and increased market liquidity leading to stock market strength is plausible. .....
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