Why Stocks Will Remain Under Pressure Until Tax Day April 15

• In the next two weeks, the stock market may face pressure on tax day.

• Fundstrat emphasized the volatility in stock market performance heading into tax day after a strong prior year.

• "This relationship exists because investors need to raise cash to pay capital gains," the company said.

The stock market may experience volatile trading behavior in the two weeks leading up to the April 15 tax deadline.

Fundstrat's Tom Lee highlights the historical trend in stock trading around the tax deadline after a strong year of gains.

"There may be some artificial tax-related selling pressure on stocks this week and next," Lee said in a note to clients Wednesday.

Fundstrat analyzed the data and found that since 1945, where the stock market has risen by more than 15% in the previous year, the market has underperformed before the tax year, winning by only 52%.

In comparison, where the stock market has declined in the previous year, the winning percentage around the tax deadline is 100%.

After the S&P 500's strong rise of 24% in 2023, investors who sold upgraded stocks last year are now facing some big tax bills.

"This relationship exists because investors need to raise cash to pay capital gains. As a result, there will be selling pressure on stocks going into tax day," Lee said.

However, Lee does not expect this potential weakness to continue, but rather sees it as a buying opportunity for investors.

"This is a short-term mechanical problem that will dissipate after tax day. In other words, take advantage of this short-term distortion," Lee said.

Ultimately, Lee frames the weak start to the second quarter as a buying opportunity for investors, recommending stocks with broader themes such as artificial intelligence trading, GLP-1 weight loss trading, and financials and industrials.

"The bottom line is that we're buying into this short-term decline," Lee said.

Read the original article on Business Insider