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“All taxes discourage something. Why not discourage bad things like pollution rather than good things like working?” – Lawrence Summers
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The market is breathing a sigh of relief after Iran’s much-anticipated attack on Israel was well enough choreographed that it had minimal damage on Israel. While futures are higher, they’re still well below where they were as of the close on Thursday, so not all of the geopolitical risk has been priced out of the market. Going forward, earnings and the economy will take center stage as it’s a busy week ahead on both fronts. Starting things off this morning, Goldman Sachs (GS) reported better-than-expected EPS and revenues and the stock is trading up over 4%. Regarding the economy, there’s a busy calendar with Retail Sales and Empire Manufacturing at 8:30 followed by Business Inventories and Homebuilder Sentiment at 10 AM.
Happy Tax Day. If you haven’t already filed your taxes for 2023, you’re starting to run out of time. Based on the performance of stocks so far in April, it seems like people who owed money have been raising cash in the stock market as the S&P 500 is down 2.5%, the Nasdaq is down 1.3%, and the Russell 2000 is down 5.7%. While you could make a good argument that the weakness is tax-related, a counter to that argument would be that European stocks have also been weak to kick off the quarter, but April 15th isn’t a tax deadline on the other side of the Atlantic.
Whether it’s tax-related or not, there is some historical precedent for April to get off to a weak start, especially in years when the first quarter was positive. The chart below shows the intraday performance of the S&P 500 during April broken out by how the index performed YTD heading into the month. In the 28 years when the S&P 500 was up YTD heading into April, its average MTD performance heading into the start of trading on the 15th was a gain of just 0.2% with positive returns just 57% of the time. That compares to an average rally of 1.4% and gains 69% of the time in the years when the S&P 500 was down YTD heading into the month. Not only is the S&P 500’s average performance in the first half of April weaker in years when it was up YTD through the end of Q1, but in the seven years since 1983 when it was up 10%+ in the first quarter, the average MTD performance through the close on 4/14 was a decline of 0.2%.
On a positive note, while the first two weeks of April have historically been weaker in years when the S&P 500 was up in Q1 versus down, the rest of April has been more positive. In the 28 years when the S&P 500 was positive in Q1, April’s average performance from the close on 4/14 through month end was +1.4% compared to an average gain of 0.7% for all other years.
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