Citi strategist Alexander Saunders has warned investors about returns from the US equity investments as the mid-April tax deadline approaches.
Saunders notes that US equity returns have traditionally been lackluster following strong up years, like 2021. This may not be the case with international stock markets, while it is yet to be seen how cryptocurrencies will behave during the first two weeks of April.
Our hypothesis is on years following strong market up moves, individuals are more likely to sell equities in advance of the mid-April payment date The 2020 COVID period was a clear outlier. Markets recovered strongly amid Fed support via QE and associated actions. If we exclude this data point the relationship is further strengthened (t-statistic -2.36 from -1.45), Saunders said in a client note.
Although the strategist acknowledges a relatively small sample size, he notes that historic returns are negative up until 2 days prior to the deadline day.
The strategist is also cautious on cryptocurrencies.
Performance of crypto markets going into the US tax season will be interesting. Increased adoption and regulatory awareness has also increased scrutiny. Some exchanges are issuing tax forms to US residents. This may lead to some selling pressure in the crypto space to fund any liabilities, Saunders added.
Despite these potential short-term bumps, Citis strategists remain cautiously optimistic on stocks over the medium term.
By Senad Karaahmetovic