April – one of the most exciting months for investors! Five years ago April was the strongest month for the stock market in the year, but it now ranks second behind December. The two months have been switching first and second places for quite a few years now. For the last few years it has been December, but April is not far behind. Interestingly, 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.
On average the market rises 1.8% in this month; and the probability of a positive return in the month is 71%. 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.
As can be seen in the chart, the strength of the market in April has been fairly constant since 1984 apart from in a few years.
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.
FTSE 100 v S&P 500
This is the strongest month for the FTSE 100 relative to the S&P 500 (in sterling terms), the former out-performs the latter by an average of 1.3 percentage points in April (in 2015 the FTSE 100 out-performed the US index by 5.1 percentage points).
April also often sees strong performances by sterling against the dollar and oil.
The seasonality significance of April is that it the last month in the strong part of the six-month cycle (November-April), that is a feature of the Sell in May Effect (called the Halloween Effect in the US). Therefore investors may be reducing their exposure to equities ahead of May.
In the diary this month we have US Nonfarm payroll on the 1st, MPC interest rate announcement on the 6th, and the two-day FOMC meeting start on the 26th.
Anniversary-wise, 40 years ago this month in 1976 the first Apple computer, the Apple I, was released. In the same month James Callaghan was elected prime minister and long-end gilt yields were 15%.
Article first appeared in Money Observer
Further articles on the market in April.