The Day Ahead: April Is Scary

 | Mar 28, 2013 | 8:00 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

clx

,

tup

,

hsy

As a kid, April was always a joyous time. There was the birthday and its associated presents in week one, which then gave way to baseball tryouts. Now, having found my first gray hair this past Monday (hey, it was emotional) and having compiled data from Aprils of yesteryear, I realize that the calendar turn has become rather depressing. 

Over the next five days, you will bear witness to all sorts of slick-sounding strategist notes predicting an April calamity in the markets, using specific examples starting from April 2010. The evidence legitimately supports the case for lightening up on portfolio risk, as does a market that deserves a little steam release (Clorox (CLX), Tupperware (TUP) and Hershey (HSY) can't keep ripping to fresh 52-week highs, as these companies are not game-changers, just stable dividend payers).

What I want to convey, however, is that there will be differences between April 2013 and the Aprils of 2012, 2011 and 2010, and that ultimately a mega-retracement in stock prices is not a done deal. (Usually when you think something is a done deal in the markets, so does everyone else, and the opposite happens.) There is a better than 50% probability for a minor retracement that will act as a period of reflection on whether to enter the month of May boasting a spreading of sequester economic effects.

Two Consistent Demons of April

  • Winning positions sold to satisfy the April 15 tax deadline.
  • Corporate quiet periods ahead of earnings reports, leading to less factual information flow and more rampant speculation.

Running Down Depressing Aprils

2012

  • Major indices' performance for the month: Dow flat, S&P 500 -0.8%, Nasdaq -1.5%, following strong gains in each in the month prior.
  • S&P 500 peak: April 2, 2012.
  • Worries circulating in the markets: A deceleration of China's economic growth (which caused negative sales surprises for multinationals), pre-Draghi promises driving uncertainty on the euro zone staying intact, election season politics, earnings estimates falling because of a slowing global macro environment.
  • Specific event that shifted the investing backdrop in my view came on April 3, 2012, with the Fed minutes: "Prepared to adjust the size and composition of securities holdings as appropriate."

Sidebar

I continue to believe Fed Chairman Bernanke altered his stance on the pace of quantitative easing during the most recent press conference (he acknowledged that "meaningful" improvement in labor market conditions, instead of "substantial" improvement, was needed before the Fed would consider a shift in the amount of monthly securities purchased). So, rather creepily, this places the next Fed minutes squarely in focus as a rally killer, circa 2012.

By the way, one difference between now and a year ago is that earnings estimates are not dropping materially, probably on expectations for healthy utilization of newly enacted share-buyback plans and tame input costs. Therefore, this reduces the risk of earnings letdowns, though intense multiple expansion may turn quality reports into sell-the-news events.

2011

  • S&P 500 peak: April 29, 2011.
  • Negative events: S&P slashed U.S. debt outlook, rising fears on the extension of Operation Twist (which was extended in June), the Japan earthquake and tsunami, Arab uprising, inflation.

2010

  • S&P 500 peak: April 23, 2010.
  • Negative events: Dodd-Frank, no stability in the European Union's financial markets and, by extension, its economies.

Wild Cards

  • Housing is quite supportive, a major difference in relation to 2012, 2011 and 2010.
  • Employment growth does appear to be at a sustainable post-recovery pace and accelerating (housing and manufacturing momentum helps to sustain it ), a difference in relation to 2012, 2011 and 2010.
  • The Volatility Index (VIX) is absurdly low, a similarity to 2012, 2011 and 2010.

Columnist Conversations

THE FIBOCALL: GM-Follow up to July 24 GM column: " GM testing first support today" Using the April 11 low @ 3...
Polycom announced a new share repurchase authorization on Wednesday worth $200M and said that its previous pro...
Feeling very random this morning in front of last trading day of the week. Any chance of actual corporate tax ...
Core Labs (CLB) Sent May 12,2014 "Today is Day 1 of our 3-Day Rule, so we would look to take back some shorts ...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.