Does tax season affect the stock market?
The Internal Revenue Service, tax planners and filers are getting ready for the start of the 2023 tax season which kicks off 23 January. Taxpayers will need to submit their paperwork and pay any taxes owed by 18 April. The tax season doesn’t just stir people to sort out their financial papers, it also causes gyrations in the stock markets.
As Tax Day approaches a common phenomenon occurs with the price of stocks slumping towards the end of the tax season. While the dip doesn’t typically last that long, usually markets rebound by mid-April, the reason, or theory, behind it is fairly straightforward.
Another anomaly has been seen at the end and beginning of the year. Known as the ‘January Effect’, the value of stocks drop in December and then rebound in January. This one however has all but disappeared over time, some even doubt that it exists, and again the explanation is partially tied to taxes.
For more on how your portfolio could fair this tax season, check out our full coverage.
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