Historically, April Is Kind to the S&P 500. How Will 2023 Fare?

It’s an old adage that many investors know by heart: Past performance does not guarantee future returns.

And yet, for the S&P 500, there’s one month that has repeatedly had a strong performance — April.

Since 1928, the S&P 500 has had an average monthly gain of 1.4% for April, according to an analysis by Yardeni Research. That makes April the second-best month for the index in that period, with July taking the lead at 1.7%.

If we move our starting point to 1941, then July falls back and April remains the S&P 500’s strongest month, with a 1.7% average gain, according to CNBC. Every other month in that period averages around 0.7%.

Narrowing the frame even further, we’ll see that April has been the strongest performing month since 2002 and the second-strongest since 2012, according to LPL research from last March.

So what gives? Why have stocks performed so well in April?

» Learn more. How to Invest in the S&P 500

Why April is strong for stocks 

Call it coincidence — or springtime exuberance — but market analysts and experts haven’t quite figured out why the S&P 500 blossoms so frequently in April.

Some ascribe it to “spring cleaning.” Between January and March, every company releases its Q4 earnings report. Because these reports contain a company’s final earnings for the previous year, they give investors a better idea of how the stock might perform. As weaker companies emerge, investors sell off stocks. By the time April rolls around, they have some cash to invest with — and they’re looking for strong performers in the S&P 500.

Another theory is that investors receive their tax refunds in April and are using that money to invest in the stock market. Similarly, dividend stock investors will receive quarterly dividends in April or late March, which they reinvest in stocks.

Of course, stocks don’t always perform strongly in April.

For example, last year, investors were counting on April’s magic to carry the stock market through the Fed’s first rate hike. Instead, the S&P 500 dropped by 8.8% for that month, making it the worst April for stocks since 1970 when the market dropped 13.3%.

Could the S&P 500 perform well this April? 

Investors have a few reasons to feel bullish this month.

For one, the S&P 500, Dow Jones Industrial Average and Nasdaq all appear to be gaining momentum after a turbulent March. Over the last 5 days, the S&P 500 notched a 2.59% gain, while the Dow and Nasdaq closed 2.35% and 1.92% higher, respectively.

Those gains may not seem like a lot. But don’t forget: This was a month that saw the second and third largest U.S. bank failures in the history of banking, the likes of which we haven’t seen since Washington Mutual gave up the ghost in 2008. The Fed also raised the fund rate to its highest level since June 2006, according to Federal Reserve data.

Catastrophic as these events may have appeared initially, investors seem unfazed. Evidence of this can be seen in the recent plunge of the CBOE Volatility Index (VIX), which measures investors' expectations for the stock market over the next 30 days. A plunge in value means investors are feeling secure and calm about the market’s future.

The VIX index ended March 30 with a 2.91% loss — and a 15.88% drop in the last five days — which is a good sign investors are feeling confident going into April.

What stocks should you watch in April 2023? 

Investors have a lot to watch for in April.

First off, many of the banks that saw a rapid selloff in March — like Charles Schwab — will release their Q1 earnings report for 2023. If these reports are anything less than stellar, it could make investors jittery and send tremors through the banking sector of the S&P 500. Here are a few key banks to watch, along with the release date of their earnings reports:

• First Republic Bank (FRC): April 12 

• Wells Fargo (WFC): April 13 

• J P Morgan (JPM): April 14 

• Citigroup (C) : April 14 

• Charles Schwab (SCHW): April 17

• Bank of America (BAC): April 18 

• Morgan Stanley (MS): April 19 

Another group to watch: big tech companies. In the midst of layoffs and high borrowing costs, the following tech giants will release their Q1 2023 earnings reports in April:

• Netflix (NFLX): April 18 

• Microsoft (MSFT): April 25 

• Alphabet (GOOG): April 25 

• Meta (META): April 26 

• Apple (AAPL): April 27 

• Amazon (AMZN): April 27 

Finally, the following mega-cap companies will also release Q1 earnings reports this month:

• Taiwan Semiconductor (TSM): April 13

• Tesla (TSLA): April 19 

• Procter & Gamble (PG): April 21

• Coca-Cola (KO): April 24