Friday, April 17, 2009
April tax collections could stall this rally
You may have heard the expression, "Sell in May and go away," when it comes to the stock market. There's a very good reason for that: Taxes. On April 15 each year millions of Americans must send a check to the tax man. That leaves less disposable income in the economy until ongoing government spending replenishes it. (That's the summer rally.)
This year the tax effect might be fairly strong. With households stretched any reduction in disposable income could hurt the economy.
There is a bright side, though. During prior recessions tax payments to the government were relatively low and that old axion of sell in May and walk away, didn't work very well.
My recommendation is that if there is a correction, use that as an opportunity to buy stocks.