Date: April 15, 2024

Seasonally Positive Tailwind Against Middle East Escalation

Happy tax day (said with sarcasm)!

The stock market has been seasonally strong on tax day as well as the day after. First, the middle of the month typically sees inflows from 401K and other retirement plans. Add on top of that the billions in last minute IRA contributions and you have a nice tailwind for two days. I think the best way to play that is to buy weakness. If stocks up higher and continue to run, I would let it alone.

There is also a tailwind today after Friday’s large selloff on the prospects of Iran attacking Israel over the weekend. With all that warning, it has the makings of selling the rumor and buying the news, not to mention that Mondays and/or Tuesdays after big down days on Fridays tend to see a bounce.

Regarding the Middle East, I have two schools of thoughts. First, Iran’s retaliation on Israel was symbolic and not the start of anything big. Why send slow moving drones that they knew would be intercepted. They needed to save face among their people. The second thought is that the attack was just a test run to see who would defend Israel, with what weapons and to what extent. The real attack would be forthcoming.

The former is bullish for stocks and bearish for oil. The latter is the opposite, at least in the short-term.

From the Q1 peak in March through Friday, here is what we have so far:

Dow Industrials -4.50%

S&P 500 -2.50%

S&P 400 -3.20

Russell 2000 -5.25%

NASDAQ 100 -2.50%

While I expected a bit more on the downside, the most bullish scenario has stocks bottoming this week. That is still not my base case, but it remains a possibility. It would be easier if we saw a seasonal bounce for 1-3 days with another move lower into month-end. That would set up nicely for a better and more long-lasting rally.

On Friday we bought BMAY. We sold MU and DWAS.


Paul Schatz, President, Heritage Capital