CFRA’s Sam Stovall sees three reasons April should be earnings for stocks.
Stovall, who is known for making market forecasts based on historical trends, highlights market instability over the past two weeks as his main bullish signal.
“The time after the Ides of March is usually volatile – in fact, it drops about 60% of the time,” the company’s chief investment strategist told CNBC’s “Trading Nation” on Monday. “Whenever that has happened, it has made a nice stepping stone into April.”
So far this month, the S&P 500 is up more than 4%. However, the index has been practically unchanged since March 15th. If the index breaks in the second half of March, Stovall finds that a positive April occurs 77% of the time.
The second reason he cites the company’s quarterly results.
“We expect earnings to grow more than 15% in the first quarter of 2021,” said Stovall.
A moderating benchmark return on 10-year Treasury notes ranks third on its list.
“They are not rising as dramatically as they were before,” said Stovall, who predicts the yield will fluctuate between 1.50% and 1.75% over the next month.
He expects the strength of the S&P 500 to continue into the second quarter.
“Historically, the second quarter has been a good quarter for the market, an average of 2.8% since 1990,” said Stovall. “All sectors in the S&P have seen average gains in the second quarter since 1990.”
In the second quarter, technology, energy, and healthcare all had the highest average returns in the last three decades, according to Stovall. Even the top second-quarter laggards – consumer staples, utilities, and communications services – also made gains.
He believes this year will follow the trend, particularly in relation to Wall Street’s expectations that President Joe Biden will successfully pass an infrastructure spending package.
“Investors are pretty much preparing for another round of economic activity,” said Stovall. “It is likely that cyclical sectors will be among the best performing at the beginning of the second quarter.”
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