U.S. Tax Day

Tax Day in the United States refers to the day by which individuals must submit income tax returns to the federal government.

In the past Tax Day has moved around a bit, but since 1955 it has been fixed at 15 April. Although there are exceptions due to the close proximity of the Emancipation Day holiday in Washington State D.C. Such that since 2007 when 15 April falls on a Friday then Tax Day is moved to the following Monday, and when 15 April falls on a weekend Tax Day is moved to the following Tuesday.

This year, 2017, 15 April is a Saturday and so Tax Day will be Tuesday, 18 April.

It is probably not too controversial  a claim that most people dislike filling in forms and paying taxes. Could this dislike affect individual investors attitude to risk around the time of Tax Day and. if so. could that in aggregate be sufficient to influence equity returns around this period?

Let’s see…

The following chart plots the proportion of weeks that saw positive returns in the S&P 500 Index for the two weeks before Tax Day and for the one week following Tax Day for all years since 1955. For example, the S&P 500 had positive returns in the week two weeks before Tax Day in 69% of years since 1955.

S&P 500 in weeks around Tax Day [1955-2016] - Positive week returns

As can be seen, over the three-week period there was a moderate decline in the proportion of positive weekly returns.

The following chart looks at the same period and weekly frequency, but plots the average weekly returns.

S&P 500 in weeks around Tax Day [1955-2016] - Average week return

Here we can see relatively high returns two weeks before Tax Day, although this overlaps with the start of April which is usually a strong period for equities anyway. The week leading up to Tax Day is relatively weak, and then there’s something of a small relief(?) rally in the week following Tax Day.

Let’s now focus in on the days around Tax Day.

The following chart plots the proportion of days that saw positive returns in the five days around Tax Day. For example, since 1955 the S&P 500 Index has seen positive returns on Tax Day itself (TD(0D)) in 67% of years.

S&P 500 in days around Tax Day [1955-2016] - Positive day returns

Historically we can see that returns have been depressed leading up to Tax Day, with the strongest returns in the 5-day period seen on Tax Day itself.

The following chart looks at the same period and daily frequency, but plots the average daily returns.

S&P 500 in days around Tax Day [1955-2016] - Average day return

The same behaviour profile can be seen as in the previous chart. The weakest average daily returns in the period have been seen on the trading day two days before Tax Day. While the strongest average daily returns have been on Tax Day itself (with an average daily return ten times the average daily return for all days since 1955).

Conclusion

The results here are not strong, but there is some evidence that equities are relatively weak in the days immediately before Tax Day, but the market is strong on Tax Day itself.

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S&P 500 daily returns heatmap

This updates a previous article with the latest figures for the average daily change and positive daily returns of the S&P 500.

The table formatting and analysis is largely as before; except the charts now use a smoother gradient of colours to indicate number magnitude.

Average daily returns

S&P 500 average daily returns heat map [2015]

Positive daily returns


Other daily return heatmaps.

 

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S&P 500 daily returns heatmap

This article concerns the daily returns for the S&P 500 Index from 1950.

Average daily returns

The following table shows the average return since 1950 of the S&P 500 Index for each day of the year. For example, over the last 65 years the average daily return for the S&P 500 Index on 2 January has been 0.29%.

In the table, positive average daily returns are coloured green, while negative average returns are coloured red. Daily returns are highlighted dark green (red) for large positive (negative) returns. (See below for the definition of large.)

Average daily returns heatmap - S&P 500

Observations:

  • The day with the greatest number of large positive average returns is the 1st of the month followed by the 15th.
  • Two days of the month, 7th and 8th, have no large positive average returns.
  • The month with the greatest number of large positive average daily returns is Novermber, while February and June have none at all.
  • There appears to be a concentration of large negative average daily returns from the 20th to 25th of months.
  • The longest period of the year with no large negative average daily returns is 15 Dec to 7 Jan.
  • The month with the greatest number of large negative average daily returns is September.

Positive daily returns

The following chart is similar to the above, except this shows the proportion of positive returns for each day of the year. For example, since 1950 61% of the S&P 500 Index returns on 2 January have been positive.

Positive daily returns heatmap - S&P 500

Definition of large

Values are highlighted as large if they are more than 1 standard deviation from the average. For example, for the daily returns in the first chart the average daily return (for all days) is 0.04% and the standard deviation 0.16, so values are highlighted if they are above 0.20% (0.04 + 0.16) or below -0.12% (0.04 – 0.16).


Other daily return heatmaps.

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