Is April the Best Month for Stocks
According to LPL Financial, April is routinely celebrated as one of the best months of the year for stocks. The S&P 500 has closed on the positive side 15 of the last 16 years.
Of course, no one can predict where the market is heading in any given month. As you well know, the stock market had a very rough start to the year as investors worried about rising inflation, continued supply chain issues, the war in Ukraine and the likelihood of the Federal Reserve raising interest rates.
The S&P 500 posted its worst quarter this year since March of 20020 when the pandemic began. However, stocks saw a slight comeback in March.
When looking at April historically, it has been the best month in S&P 500 returns in the past 20 years and the second best month in the past decade, according to LPL Financial.
The average monthly gain of the Dow Jones Industrial Average in April over the past 100 years is 1.46%, with positive returns 62% of the time. That ranks as the third-best month behind July and December. In the last 50 years, April is easily the highest of any month with an average of 2.2%.
Why is April so strong for the stock market?
That’s an age-old debate. One theory is that investors are spending their tax returns to buy stocks, pushing share prices higher… hmmm, maybe.
Another potential reason is that large institutional investors such as large hedge, investment and money management firms may be cleaning up their portfolios in March by removing some underperforming stocks, since they need to report quarterly to their shareholders and the first quarter ends at the end of March. That seems interesting!
Can we expect a good month for stocks in April?
There are indications that stocks could fare well in April 2022. On top of April generally being a good month for the stock markets, history says that following a down first quarter ( in which we’ve experienced), investors may feel as though they’ve oversold and want to buy back in during the second quarter.
Keep in mind that while history is a good reference point, it is certainly not a crystal ball that can predict the stock market’s performance.
There’s hardly any consensus on where stocks are heading. The Fed is tightening monetary policy, a recession could be on the horizon, and there is still a war in Ukraine. All of these could throw a curve ball on the positive April effect.
At the same time, the economy appears to be strong, and investors may be trying to get back into the market after the recent correction.
It certainly feels a lot better going into April than it did the first three months of the new year.