What A Short Strange Trip It’s Been

Some weeks go slowly, others speed along. This week was the latter. There was something noteworthy in almost every sector of the markets and we had the ups and downs to prove it. Space and deadlines don’t permit a full recap of all the week’s activities, but we can rely on charts to do much of the talking.

On Wednesday, we featured a chart of the normalized month-to-date performance of 4 major US equity indices. They were all underwater at the time, yet even after some solid gains, most have still not recovered any potential “sell in May” levels:

Normalized Month-to-Date Performance for Various Major Indices: S&P 500 (white), Nasdaq 100 (blue), Dow Jones (purple), Russell 2000 (red)

(Click on image to enlarge)

Normalized Month-to-Date Performance for Various Major Indices

Source: Bloomberg

Even after a day and a half of solid rallies, we see that all the indices above are still down for the week, and only the Dow Jones is up marginally for the month to date. Those who bought the dip on Wednesday have been rewarded so far, though. In that same Wednesday article, we outlined a potential reason for some added pressure on the market this week – taxes:

“Because May 17th is this coming Monday, today [Wednesday] is the final day for investors who sell shares for regular delivery (T+2) to receive the proceeds in their accounts prior to tax day.”

It was clear that the surprisingly high CPI reading that was released on Wednesday morning was the main culprit for the sharp selloff that we saw that day, I strongly believe that tax selling added to the day’s woes. I believe that taxes also explain much of the ferocity of the snapback rally that began yesterday and continues through today. Yesterday’s PPI release continued the theme of higher than expected inflation, but stocks were able to propel themselves forward without the somewhat forced selling by investors who needed to liquidate stock holdings to raise money for tax payments.

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