April is widely considered one of the best months for trading stocks. The reasons for this are multifaceted, but the month has historically been a time when the market tends to perform well. In this article, we'll explore the reasons why April is an excellent time for trading stocks and analyze the performance of the S&P 500 during April over the past 10 years.
Why is April a Good Month for Trading Stocks?
There are several reasons why April is considered a good month for trading stocks. Here are a few of the most important ones:
- Tax Refunds - Tax refunds often start to arrive in April, and many people use that money to invest in the stock market. This influx of new money can drive up stock prices, creating opportunities for traders.
- Springtime - April is the beginning of spring in many parts of the world, and the change in season often leads to an increase in consumer spending. This can benefit companies, which can see their stock prices rise as a result.
- Corporate Earnings Reports - Many companies report their earnings in April, and positive earnings reports can lead to higher stock prices. Traders can take advantage of these reports by buying stocks ahead of time in anticipation of positive news.
S&P 500 Performance in April Over the Last 10 Years
To understand how the S&P 500 has performed in April over the past 10 years, we analyzed data from Yahoo Finance. Here's what we found:
In 2012, the S&P 500 gained 2.5% in April.
In 2013, the S&P 500 gained 1.8% in April.
In 2014, the S&P 500 gained 0.6% in April.
In 2015, the S&P 500 gained 0.9% in April.
In 2016, the S&P 500 gained 0.3% in April.
In 2017, the S&P 500 gained 0.9% in April.
In 2018, the S&P 500 gained 0.4% in April.
In 2019, the S&P 500 gained 4.0% in April.
In 2020, the S&P 500 lost 12.5% in April due to the COVID-19 pandemic.
In 2021, the S&P 500 gained 5.2% in April.
As we can see from these numbers, April has generally been a positive month for the S&P 500 over the past 10 years, with eight out of the 10 years resulting in gains. The two years that saw losses were 2014 and 2020, with the latter being heavily impacted by the COVID-19 pandemic.
Speaking of price increases, we can also consider this pattern in terms of returns. Since 1928, when we started tracking the S&P 500, April has had an average return of 0.88%. This is far higher than the month-wide average of 0.47% .
Other Strong Months
Besides April, December is considered the best month to own the stocks. This is consistent with a phenomenon called the "Santa Claus Rally," which claims that stock markets rise around Christmas. Another theory is that the holiday season has a psychological impact on investors, causing them to buy rather than sell. We might also speculate that many institutional investors are away at this time. This may increase the influence of regular investors who are positive on the market.
January is another month known for higher trading activity, and there is a phenomenon known as the January effect . According to "Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies" by Jeremy J. Siegel, investors return to equity markets with a vengeance at the beginning of the year, driving up prices, particularly of small-cap and value companies.
Final Thoughts
April is a month when the stock market tends to perform well. Tax refunds, the beginning of spring, and corporate earnings reports are just a few factors contributing to this positive trend.
While there are no guarantees in the stock market, historical data suggests that April is a good time for traders to consider buying stocks.
As now you know that this is not just a myth, but statistics show that April is indeed one of the best months for trading, are you ready to start investing and prove this theory in your own portfolio?
