Indicator of the Week: Why April is a Good Time to Buy Stocks

The SPX will try to make it 10 winning quarters in a row

Senior Quantitative Analyst
Apr 8, 2015 at 7:32 AM
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Tuesday of last week marked the end of the first quarter. The S&P 500 Index (SPX) gained a mere 0.4% for the quarter, which was good enough to extend the index's winning streak to nine quarters in a row. We've had more than two years now without a losing quarter for just the fourth time since 1928 -- as far back as our data goes. This week I'll take a look at those prior quarters to see if it's a sign of a frothy market. Also, I'll show how April has been the most bullish month over the past 20 years, and why if this April behaves like those past Aprils, you have plenty of time to load up on stocks and enjoy the gains.

Quarterly Win Streak: As I mentioned above, SPX has gained in nine straight quarters, and it's just the fourth time we've seen a quarterly win streak that long. The table below summarizes the other win streaks. One positive note from the table is that in each case the streak was extended to 10 in a row, and also in each case the index was higher one year later. The last win streak occurred in 1997, and the SPX went on to gain 45% over the next year. However, that proved to be a very overvalued level, as the tech bust happened soon afterward.

SPX 9-Quarter Win Streaks

Here is a chart comparing the path of the current streak to the prior streaks. The red dots mark the last positive quarter for the corresponding streak. As you can see, and as is noted in the table above, the current streak has had the smallest return of the bunch. Its momentum seems to be tapering off with the nearly flat quarter last quarter.

SPX Win Streak Path

April: The end of the first quarter means that it's the beginning of April. That's good news if history is our guide. Over the past 20 years, April is the only month that has averaged a gain of over 2%. Also, it's tied with November and December with the most percent positive.

SPX Monthly Returns

The chart below shows the typical path that the SPX has taken to end up at an average gain of 2.16% for the month of April. Stocks have typically gotten off to early gains, but then pulled back to almost flat at the halfway point of the month. The second half of the month is where the gains have been made in April.

SPX Monthly Returns

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