September seasonality and US taxes.
- Adam Reynolds
- Sep 10, 2024
- 2 min read
The US has slightly strange tax collection dates in Jan/Apr/Jun/Sep, on the 15th of the month or the next business day after. The tax collection drains a lot of liquidity from the market which is increased if capital gains are strong. So high share prices over the last 12 months increases CGT liability for those who have realised the gains. This very likely accounts for the negative seasonal performance of the stock market in September and (less so) in April.
The Treasury General Account (TGA) at the Fed is the best way to see this inflow of cash. The TGA has a few things flowing through it, proceeds of new debt issues in, proceeds of tax collections in and government spending out. Given the high level of fiscal stimulus lately, the outflow is very strong. When the government was approaching lockdown in 2023, the TGA was drained almost to empty before the two sides came together, this muddies the picture for H2 2023, but the performance of the equity market in Sept 23 was still very poor.
These multiple flows make it hard to be precise about the amount of liquidity drain from tax payments, but it looks like April this year was around $235 bio. The flows occur mostly in the two weeks around tax payment due date. Ie many people do pay late, or at least the money reaches the TGA late.
This month payment due date is next Monday 16th Sept and the rolling 12 month performance of US stocks is still strong. Expect the back end of this week and next week to see reducing liquidity and pressure on stocks as people sell stocks to generate their liquidity. Add to this the concerns over growth and employment and we should see further weakness in stocks in the next couple of weeks.
How much lower the market moves over this period will determine Q4 performance. If the market holds up at the current level, then Q4 may end up being pretty strong. If we break below August 5th lows, then we may see an acceleration lower. At the moment I focus on shorting the “ringleaders” of the economy, Semiconductors and EVs. If we do not make new lows, I will look to buy back into quality names in late September.
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