Dear Reader,
TGIF!
Today I want to share something I find genuinely fascinating — and it's actually good news…
April is the Best Month of the Year for Stocks
I was just going over data provided by Bloomberg, and over the last 25 years, the MSCI World Index has posted positive returns 75% of the time in April.
Three out of every four Aprils are positive.
And over that entire 25-year period, the market has risen an average of 2% in April — the strongest of any month of the year.
This is particularly driven by U.S. stocks, which carry a 70% weight in the index.
Why October Has Always Been Feared
This got me thinking about seasonality and where it comes from.
When I first started on Wall Street, I read a book called Reminiscences of a Stock Operator — written by Edwin Lefèvre about the life of Jesse Livermore, the great speculator of the 1920s they called "the Boy Plunger."
He was worth $100 million in the twenties, famously shorted the market in 1929, and the book is one of the classics of Wall Street literature.
Livermore talked about why bank panics always seemed to happen in October.
Before the Federal Reserve Act of 1913, the financial system was far less flexible.
Throughout the 1800s, farmers needed to withdraw massive amounts of capital during harvest season — late summer and fall.
That left New York banks dangerously thin on cash.
Any pressure during that window and you had a market crash.
That's where our fear of October was born — and it baked itself into the psychology of markets for generations.
The Best and Worst Months, by the Numbers
Here's how the calendar breaks down historically, according to Bloomberg:
April is number one at +2.0%.
November is number two at +1.9%.
July is number three at +1.7% — which might surprise a lot of people.
October and December each come in around +1.0%.
Now here's where the old saying "sell in May and go away" comes from.
May is barely positive at +0.2%.
June is negative.
August and September are both negative.
Of the five months from May through September, only July is positive.
So historically, there is real merit to that strategy — even if it's not something I'd apply mechanically.
Why Does April Outperform?
A few reasons get cited regularly.
Tax-related selling pressure lifts as the first quarter ends — people have been selling stocks to cover their tax bills, and that pressure subsides.
Pension contributions hit in Q1 for many institutions, which then frees up fresh capital to deploy in April.
But honestly, I think there's also something deeply human at work here.
April is the beginning of spring.
People feel warmer, more optimistic.
They start to see the glass as half full.
Come September and October, the days get shorter, the air gets colder, and that same glass starts to look half empty.
We are still very human in how we perceive the world — and markets reflect that.
None of us graduate above being human.
That's the bottom line.
I always love these kinds of statistics, and I hope you find them as fascinating as I do.
Have a wonderful weekend.
I'll see you Monday.
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Written by Dylan Jovine