The S&P 500 Index (SPX), which posted its best gain in a decade by rising 13.1% in 1Q 2019, is poised to rise even higher in the month of April, which has posted the biggest average gains of any month over the last 20 years. The index was up in each of the first three months of 2019, which historically has been followed by gains in April, according to LPL Financial Research. The S&P 500 opened daily trading just 2.5% below its all-time high set last September.

That bright outlook is why many investors are rushing into stocks to avoid missing more gains. “There is that fear of missing out, which along with a tempered Fed creates the belief that we’re not going to be retesting those December lows,” Leslie Thompson, co-founder of Indianapolis-based wealth planning and investment management firm Spectrum Management Group, told The Wall Street Journal.

More than 80% of active traders surveyed by discount brokerage firm Charles Schwab Corp. believe that now is a good time to invest in U.S. stocks, per the Journal. Meanwhile, market history charted by LPL Financial Research also points to possible gains in April, as detailed in the table below.

The S&P 500 Blooms In April

  • Biggest average gains for any month across the last 20 years
  • Up in 13 of the last 20 years (65%)
  • Average gain of 1.7%
  • Since 1950, average April gain is 2.6% when Jan., Feb., March were all up
  • Since 1950, Jan., Feb., March all were up 19 times prior to 2019
  • April also was up 15 of those 19 times (79%)

Significance For Investors

While falling corporate earnings have fueled bearish sentiment, there appears to be rising optimism that the U.S. and China finally will reach a trade agreement. This, in turn, may stabilize both the global economy and corporate earnings. "There's no question we're going to get some resolution to this. There's reason to believe that the U.S. economy will continue to do well," Ed Leventhal, manager of a New York-based family office, told the Journal.

While Goldman Sachs projects that S&P 500 profits will fall by 2% year-over-year in 1Q 2019, they draw bullish conclusions from history based on the Fed's turn toward dovishness. "Looking forward, the reduced pace of rising yields to less than 5 bp per month is encouraging for equity investors. Historically, the S&P 500 has posted positive returns when the 10-year Treasury yield has increased by less than one standard deviation relative to the prior 36 months." Goldman writes in a recent report.

Another propellant for stock prices may come from corporate share repurchases. Figures for 1Q 2019 have yet to be finalized, but aggregate spending on buybacks was $233 billion in 4Q 2018, up by 63% compared to a year earlier, per data from S&P Dow Jones Indices cited by the Journal.

However, investors have become increasingly nervous about the risks posed by high levels of corporate debt. As a result, corporations may choose to retire some of their bond issues rather than repurchase more stock, says Goldman. Nevertheless, debt reduction itself may provide a boost to stock prices, according to other reports.

Looking Ahead

Funds investing in corporate bonds have been enjoying record net inflows recently, according to research by Bank of America Merrill Lynch. If this pivot from equities to fixed income persists among investors, the odds of a sustained rally in stock prices may be reduced.