April’s the best time of year for a European stock market rally

European stocks are about to end their worst quarter since the pandemic hit, yet investors are feeling optimistic as they approach what is historically the best month of the year.

While the Stoxx Europe 600 Index is down 5.5% since the start of January, it has pared a decline that reached as much as 17% little more than three weeks ago amid optimism over potential progress in peace talks between Russia and Ukraine.

The renewed positivity, along with low positioning in stocks, provide a basis for a possible extension of gains in what is usually one of the most prosperous months for equities. Over the past 25 years, April has provided 2.3% gains on average for the Stoxx Europe 600 Index and only seven negative returns, the least of any month.

The timing of dividend payments may help explain April’s strong seasonality. According to Morgan Stanley strategists, a larger-than-average share of payouts are made between March and May.

History provides another good omen: When European equities post steep quarterly declines — especially early on — they tend to rally after. Looking at quarters that were as deeply red as this one over the past 20 years, it’s notable that the Stoxx 600 has risen by an average of 2.4% in the first two weeks of the next period, the exceptions being in 2002 and 2018.

© 2022 Bloomberg

Source: moneyweb.co.za