There are many reasons for investors to be concerned about the stock market right now. The month of April means they should remain just that – worried.
There's no denying it's been a tough week for the stock market. The
S&P 500 index
fell by 0.7%
Nasdaq Composite
fell by 0.5%, and the
Dow Jones Industrial Average
is down 2% – and at one point Thursday was on track for its worst decline since March 2023.
And the growing concerns that caused last week's decline cannot be ignored. These include the possibility that the Fed will not cut interest rates any time soon, suggested by Friday's higher-than-expected jobs report and perhaps further confirmed when the consumer price index is released on Wednesday. Geopolitics is also adding to the concern, with the price of WTI crude oil, the U.S. benchmark, rising just over 4% last week amid fears that tensions between Israel and Iran are heating up.
Add them all up and there's a chance the S&P 500, which is up 10% in the first quarter and trading at a higher valuation, is in for a correction. And yet traders continue to buy on dips. At 5214.04, it remains above its 50-day moving average just above 5080. The fact that it is still above its recent trend shows that buyers are still dominating the market.
The dynamics of the market are forcing even less optimistic market observers to adopt a relatively bullish tone. “I don't know that there's anything to suggest that you're selling,” said Citigroup strategist Scott Chronert, who has a target of 5,100 for the S&P 500.
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And there's a lot to like once you think about it. The strong jobs report – the U.S. economy added 303,000 jobs in March, the most since May 2023 – likely means the Federal Reserve will hold off on rate cuts for now, but also suggests the economy remains strong. And as long as it grows, U.S. corporate profits will likely continue to grow.
“That’s what we want — we want to see growth,” said Jay Woods, chief global strategist at Freedom Capital Markets. “Earnings growth continues to increase. Everything is going well.”
And that goes without saying for the month of April. Since 1928, the S&P 500 has averaged an increase of 1.4% in the fourth month of the year, more than double the average increase of 0.6% in all other months of the year. The odds are good, considering the market was up at the start of the year – the S&P 500 saw an average gain of 1.5% in years when the index rose 10% in the first quarter, according to Fairlead Strategies has increased more.
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This suggests that a correction will have to wait. “Typically, strength in April gives way to weakness in May, in keeping with the saying 'sell in May and walk away,'” writes Fairlead's Katie Stockton.
And who knows? Maybe not even then.
Write to Jacob Sonenshine at [email protected]
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