- Two consecutive positive closes for the stock market on March 31 and April 1 signal stronger than usual gains ahead for the month of April, according to Fundstrat’s Tom Lee.
- “When March 31 and April 1 are both positive price dates, the follow through for the rest of April is very good,” Lee explained in a note on Thursday.
- April already represents one of the best months of the year for stocks based on seasonality data.
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The stock market could see stronger than usual gains in April after equities closed higher on both March 31 and April 1, Fundstrat’s Tom Lee said in a note on Thursday.
Based on historical data since 1945, the S&P 500 returned an average gain of 2.4% in April when stocks posted consecutive gains on those dates, compared to just a 1.3% gain when they did not, according to Lee.
“When March 31 and April 1 are both positive price dates, the follow through for the rest of April is very good,” Lee explained.
April already is a strong month for the stock market based on seasonality data. Over the past 20 years, April has on average been the best month of the year for stocks, and since 1950 it has been the second best month, just behind November.
Besides seasonality data, a move higher in stocks this month would make sense as investors anticipate a full reopening of the economy and as Congress works on a $2.2 trillion infrastructure bill.
Economic numbers are already starting to improve based off of Friday’s jobs report, which saw a better than expected 916,000 jobs added in the month of March.
One more indicator that is increasing the chance of a strong April is a continued decline in the volatility index, also known as the stock market’s fear gauge. The VIX remains below the key 20 level, and fell below 18 on Thursday. Systematic quant funds typically pile into stocks when volatility is low on Wall Street, according to Lee.
“The bottom line is this is a positive environment and risk/reward for stocks. This keeps us constructive,” Lee concluded.