Three reasons March should act as a ‘springboard’ for stocks into April
CFRA’s Sam Stovall sees three reasons April should spell gains for stocks.
Stovall, who’s known for building market forecasts based on historical trends, highlights market instability over the past two weeks as his top bullish signal.
“The period after the Ides of March is typically volatile — actually falling about 60% of the time,” the firm’s chief investment strategist told CNBC’s “Trading Nation” on Monday. “Whenever that has happened, it sort of set up a nice springboard into April.”
So far this month, the S&P 500 is up more than 4%. However, the index is virtually flat since March 15. When the index slumps in March’s second half, Stovall finds a positive April happens 77% of the time.
He lists corporations’ quarterly results as the second reason.
“Earnings we expect to be up more than 15% in the first quarter of 2021,” said Stovall.
A moderating benchmark 10-year Treasury Note yield is third on his list.
“They’re not going up as dramatically as had been before,” said Stovall, who predicts the yield will fluctuate between 1.50% and 1.75% next month.
He expects the S&P 500’s strength will persist through the second quarter.
“Historically, the second quarter has been a favorable quarter for the market, up 2.8% on average going back to 1990,” Stovall said. “All sectors in the S&P have posted average increases in the second quarter since 1990.”
According to Stovall, technology, energy and health care have seen the highest average returns in Q2 over the last three decades. Even the Q2 top laggards — consumer staples, utilities and communication services — also grabbed gains, he finds.
He believes this year will follow the trend, especially on Wall Street expectations President Joe Biden will successfully get an infrastructure spending package passed.
“Investors are pretty much preparing for another round of stimulus,” Stovall said. “So, probably the cyclical sectors will be among the better performers as we move into the second quarter.”