As the tax season approaches its peak, a projected $150 billion influx is anticipated to boost the stock market significantly by the end of March, according to recent estimates from Wells Fargo. Analysts, including Ohsung Kwon, highlight that when such a liquidity injection occurs, the S&P 500 has historically risen, achieving gains 100% of the time with an average increase of 13% over the following six months.
The expectation stems from the fact that approximately 64% of tax returns will be issued by the end of March, with taxpayers benefiting from larger returns—averaging around $820—particularly among high-income earners, who may see refunds close to $9,000. This expected inflow into equities is coupled with a trend observed in March, which has historically been the strongest month for equity exchange-traded funds (ETFs) and mutual fund inflows, along with notable increases in personal savings rates.
Despite a temporary decline in domestic liquidity, down $105 billion in the last month as of mid-January’s peak, analysts believe the seasonal shift will transition positively by the end of March, potentially triggering a “buy” signal on Wells Fargo’s Liquidity Indicator.
Kwon refers to this period as “the Return of YOLO,” reflecting a rise in speculative trading behavior, particularly among younger investors using platforms such as Robinhood and Schwab. He emphasizes a notable increase in options trading—now representing about 25% of retail activity—signifying a shift from traditional buying and holding to more speculative engagement.
Support for this assertion also comes from President Trump, who recently promoted the increased tax refunds as a beneficial result of his policies, encouraging taxpayers to consider their spending wisely in light of this extra cash.
Market volatility has been a significant theme in early 2023, with the S&P 500 experiencing substantial fluctuations. The volatility index (VIX), often referred to as the “fear” index, has also increased consistently throughout the year.
As for market performance today, S&P 500 futures rose 0.54%, following a previous session that saw the index close virtually unchanged, gaining just 0.10%. European markets opened positively as well, with the STOXX Europe 600 up by 0.93% and the UK’s FTSE 100 climbing 1%. In Asia, Japan’s Nikkei 225 experienced a 1% increase, while trading was paused in China and South Korea for the Lunar New Year. India’s Nifty 50 also edged up by 0.37%. Meanwhile, Bitcoin saw a decline, settling at $67,400.
As the tax season unfolds, market participants and analysts alike will be closely monitoring these trends and their potential implications for the broader economy and investment strategies moving forward.
