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Should stock investors give peace a chance?

Peter Switzer
12 April 2022

Right now I’m doing something I seldom do — I’m trying to time the stock market, delaying a buy and waiting for the ‘right time’ to get in.

A few weeks ago on March 21, I wrote a piece for our subscriber investment newsletter, The Switzer Report, which was entitled 'Buy before May and stay'. The market is up 3% since then and some companies I liked, such as the troubled Magellan Financial Group, have seen their share price improve.

Magellan has gone from $13.39 to $16.62 since that day, which is a nice 24% gain. Fingers crossed, the fund manager business can keep improving.

At the time of writing that article, I knew April had a good track record for a rising stock market but I recalled that it had more trouble going up strongly when the US President faced a mid-term election, as Joe Biden will face this year.

I was also hopeful that a Ukraine war agreement might have been closer but I underestimated the madness of Vladimir Putin. That said, I know that when a peace deal happens, then stocks will soar. so long as we don’t have a big stock market pullback before peace is declared, then my ‘buy before May and stay’ suggestion will still be a good idea.

Given all this, I’m expecting a sizeable rebound in stocks and the global economy sometime this year, when peace occurs in Ukraine, China gets out of lockdowns and the world embraces a new version of what we might call ‘normality’.

So, what’s the deal with April and the stock market? Here are some intriguing facts about stocks in April based on the US S&P 500 Index, which ultimately has a big impact on our share market:

1. The S&P 500 has closed positive in April in 15 of the last 16 years, according to LPL Financial, and April is routinely celebrated as one of the best months of the year for stocks.

2. Since 1945, the S&P 500 has been higher 70% of the time in April and the index has gained an average 1.7% in that month.

3. The all-month gain over that time was only 0.7%

4. Mid-term elections do play havoc with this great statistic.

5. Aprils in mid-term years only rank as the 7th best month for the S&P 500.

6. Given the Ukraine war, the price of oil and commodities, inflation concerns and the fact that the Fed looks likely to raise interest rates by 0.5% in May, this could prove to be one of those more 'mid-term disappointing Aprils' for stocks.

On the plus side, helping stocks could be the upcoming US earnings season, and if this surprises on the high side then April could end up being better than other mid-term Aprils. That said, according to FactSet, the companies in the S&P 500 overall are expected to see earnings growth of 4.7%. This would be the lowest rate of growth since quarter one 2020, but because there have been some big gains in earnings in recent quarters, this 4.7% growth is coming off a big base.

Interestingly, if we look at US stocks over 100 years, July is the best month followed by December. April comes in third place. So, if the Ukraine war ends before or around July, that could be the kind of spark that could fire up stock markets for the rest of this year.

And the end of the war would correlate with falling oil and commodity prices, which would also help lower inflation and possibly take the heat out of the scary predictions around a lot of interest rate rises. These developments would help economic growth rebound globally. Hopefully, by then, China is out of pandemic lockdowns.

These sorts of developments should be good for stocks. If they don’t work out as I hope, well, 2022 will be the year for the pessimist, which is something I’m not prepared to concede to, just yet.

I’m investing in peace but I might just wait a bit before I put more money on the stock market rebound that I’m expecting.

By the way, much of this story was in my opening address for my Switzer Investing TV program last night.

In that episode, we looked at investing in April with my experts and whether it was too late to buy the big miners, such as BHP.

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