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

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(Bloomberg) – European stocks are on the verge of completing their worst quarter since the pandemic hit, but investors are feeling optimistic heading into what is historically the best month of the year.

While the Stoxx Europe 600 index is down 5.5% since early January, it has pared a decline that hit 17% just over three weeks ago amid optimism about potential progress in peace talks between Russia and Ukraine.

The renewed positivity, coupled with a weak positioning in equities, provides a basis for possible extension of gains in what is typically one of the strongest months for equities. Over the past 25 years, April has provided gains of 2.3% on average for the Stoxx Europe 600 Index and only seven negative returns, the lowest of any month.

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

Trust the data: European equities’ bad quarter could end with a bang

History offers another good omen: when European equities post sharp quarterly declines – especially at the start – they tend to recover thereafter. Looking at quarters as deeply red as this over the past 20 years, it’s worth noting that the Stoxx 600 rose an average of 2.4% in the first two weeks of the next period, with the exceptions being in 2002 and 2018.

©2022 Bloomberg LP

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