The Stock Market in April

April is one of the most interesting months for investors.

Why?

Let’s start with the fact that for the past decades the two stand-out strong months for the market have been April and December – the two have been switching back and forth as the single strongest month. For the last few years it has been December, but April is not far behind. Incidentally, this characteristic is not unique to the UK market; a study of 70 markets worldwide found that the strongest months for shares were (in descending order) December, January and April.

Monthly returns of FTSE All Share Index - April (1984-2014)

The average April

On average the stock market rises 1.8% in this month; and the probability of a positive return in the month is 70%. As can be seen in the accompanying chart, since 2003 the market has only fallen three times in April (although this doesn’t match the earlier performance: from 1971 the market rose in April every year for 15 years – a recent record for any month).

The market often gets off to a strong start in the month – the first trading day of April is the second strongest first trading day of all months in the year. The market then tends to be fairly flat for the middle two weeks and then rising strongly in the final week.

End of the Sell-in-May strong six-month period

The great seasonality significance of April is that it the last month in the strong part of the six-month cycle (November-April); and therefore investors may be reducing their exposure to equities ahead of May.

FTSE 100 v S&P 500

Although over the last few decades the US market has greatly out-performed the UK, the FTSE 100 Index has had a tendency to out-perform the S&P 500 Index in certain months. April is one of those months; in fact, this month is the strongest month for the FTSE 100 relative to the S&P 500 – the former out-performs the latter by an average of 1.2 percentage points in April.

Diary

This month is very quiet for company announcement: only five FTSE 100 companies and 11 FTSE 250 companies announce interims or finals this month.

On the economics front, there will be the US Nonfarm payroll report on the 2nd, the MPC interest rate announcement on the 9th and the FOMC meetings starts the 28th. Easter occurs early this year falling on the 5th; with the LSE closed on the 3rd and 6th. Apart from the days off, is Easter of interest to investors? Well, it could be. Academic studies have shown that markets tend to be strong on the day immediately before a holiday and the day following a holiday – and this effect is strongest around Easter.


Article first appeared in Money Observer

Further articles on the market in April.

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