There’s a $150 billion ‘YOLO’ trade incoming that will bo...

What’s Happening

Here’s the thing: The SP 500 “rose 100% of the time by 13% on average over the next six months” after a buy signal like this, analysts argue.

Tax season—and more specifically tax returns—will inject an extra $150 billion into the stock market of March, according to estimates by Wells Fargo . When a ‘buy’ signal like that arrives, the S&P 500 goes up 100% of the time, of 13% over the next six months, according to analyst Ohsung Kwon and his colleagues. (yes, really)

“We expect $150 billion of liquidity injection by March-end, as 64% of tax returns get issued.

The Details

Additional savings from bigger tax returns ($820 on average), especially for the high-income consumer ($9K for the top 1% of earners), will flow back into equities,” the analysts advised clients. “Historically, March has been the strongest month for equity ETF and mutual fund inflows.

March and April have also been strong months for the personal savings rate. ” “Domestic liquidity is down $105 billion over the past four weeks, since the peak in mid-January, because of tax seasonality.

Why This Matters

But the seasonality is about to turn positive, at least through March-end, likely triggering a ‘buy’ signal on our Liquidity Indicator. ” Recommended Video March has historically seen the biggest inflows of funds into the markets. Kwon calls this phenomenon the “Return of YOLO,” because it is coupled with an increase in speculative buying among younger traders on platforms like Robinhood and Schwab.

Market watchers are paying close attention to developments like this.

Key Takeaways

• Kwon argues that the proxy for that speculation is the rise in options trading, as opposed to traditional buy-hold-sell retail investor behaviour.
• “Speculation picks up with bigger savings [and]…~25% of retail activity is in options now,” he wrote.
• “Retail investors have become more speculative, especially since COVID.

The Bottom Line

Equity options volume has surged since 2020 and derivative trades now account for about a quarter of popular retail brokerage platforms like Schwab and Robinhood. ” One person who agrees with him is President Trump, who posted on socials last night , “Tax Refunds this year, because of ‘THE solid BIG clean BILL,’ are substantially greater than ever before.

How do you feel about this development?