There is no such thing as a sure bet in the market. Yet, it seems as if the WSJ found it. Simply go long in April and you are golden. The S&P 500 has averaged a 1.7% gain in April over the past 40 years, the best-performing month of the year, according to Schaeffer’s Investment Research. Yep, it’s that simple.
The reality is, of course, a little bit different. While seasonality in the stock market does exist, it has nothing to do with “Monthly” time frames and has everything to do with cyclical composition of the market. One cannot safely assume that the stock market will move up or down based on what month it is. It just doesn’t work that way. It is the cyclical composition (some spanning for days while other spanning for decades) that determines what the stock market will do in the month of April. Simply put, anyone who follows such an idiotic WSJ premise and analysis will have their head handed to them.
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WSJ Writes: Morning MoneyBeat: Bulls Rejoice for April
An uncertain economy, frothy valuations and a harsh winter have tested investors’ faith over the past three months. Fortunately for the bulls, the calendar flips to April, the hottest month of the year for U.S. stocks.
The S&P 500 has averaged a 1.7% gain in April over the past 40 years, the best-performing month of the year, according to Schaeffer’s Investment Research. The only other months that have averaged at least 1% gains are January, March, October and December. The S&P 500 rose 1.8% last April, which at the time was the market’s sixth straight monthly gain.
With the S&P 500 gaining 1.3% throughout the first three months of the year and sitting just 0.3% off last month’s highs, the question once again is just how much more momentum is behind the recent gains. Blindly assuming the rally will continue because it’s April might be a mistake, as slow earnings growth and the dialing back of stimulus from the Federal Reserve could crimp this month’s performance.
Once again, central-bank policy played a key role in the market’s recent performance. Fed Chairwoman Janet Yellen gave investors a fit at last month’s news conference when she signaled that rate increases might come sooner and be a touch more aggressive than originally expected.
“The Fed moved the conversation from stimulus ending to increasing interest rates, but after an initial negative impact the market accepted it,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, while noting an actual rate increase is seen as being at least a year away.
But stocks rallied Monday as Ms. Yellen said the U.S. economy still requires support from the central bank’s low interest-rate policy. The comments helped ease concerns that the Fed under the new chairwoman had plans to raise interest rates sooner than expected.
The focus now shifts to upcoming economic data and the start of earnings season next week.
Friday brings the March jobs report. The hope is this report will be free from any wintry-weather distortions that have hurt the economy over the past few months. Earnings, however, are unlikely to escape the impact of the bitter cold and snowy weather.
S&P 500 companies are expected to post a profit decline of 0.6% in the first quarter, according to FactSet, which would be the first drop in earnings since the third quarter of 2012. At the same time, many of these companies have issued profit warnings in near record numbers. Some 93 companies have warned that profits will fall short of forecasts, the second-highest overall number of companies issuing negative guidance on record, according to FactSet’s count.
A poor earnings season could keep a lid on this year’s rally.
“In the grand scheme of things and after such a powerful rally last year, the market really needs continued good news to go further from here,” said Wasif Latif, who helps manage $50 billion in assets as vice president of equity investments at USAA in San Antonio.
“The challenge is that we’re still in the backdrop of an overall anemic economic environment,” he added. “The market really needs that next level in the form of improving guidance of future earnings and revenue growth. We’re just not there yet.”
As the calendar turns to April, at least the stock bulls still have history on their side.