As expected, stocks are off to a strong start in April — but don’t go overboard.
Here's the good news:
1) the biggest inflows into stocks are traditionally in January and April, as investors put money to work at the start of the year and during tax season;
2) April is the best month for the Dow Industrials, up an average 2 percent since 1950, but recently it's been even better, up six straight years for an average gain of 4.2 percent, according to the Stock Trader's Almanac;
3) the start of the quarter is also a help with inflows.
Here's the bad news:
April ends the "best six months of the year" period, a widely-cited rule of thumb that notes that stocks have tended to outperform from November to April and underperform from May to October.
The evidence is compelling, according to the Stock Trader's Almanac: in the past 61 years, a $10,000 investment grew to $609,071 for November to April, but had a loss of $379 for the period from May to October.
Q1 Earnings: good and bad news.
The good news: overall earnings growth is still up; analysts are expecting a roughly 1 percent growth in earnings for the S&P 500 this quarter year-over-year, and the economy did not fall apart in Q1, as many seemed to be expecting.
The bad news: earnings are still growing, but estimates have come down dramatically this quarter; we started the quarter with expectations of a gain of 4.5 percent, according to S&P Capital IQ, now we're down to one percent or so. Q2 expectations have also moderated: from 3.9 percent in the beginning of January, to 1.7 percent today. Analyst have strong expectations for growth in the second half of the year.
The Q1 earnings weakness is notable in energy (natural gas has been a disaster) and banks (lower trading and underwriting revenues at bigger banks and lower debit card fees overall), but is offset by strength in industrials (more optimism on global growth) and Technology (same reason, but also due to the Apple earnings monster).
Bookmark CNBC Data Pages:
Want updates whenever a Trader Talk blog is filed? Follow me on Twitter: twitter.com/BobPisani.
Questions? Comments? email@example.com