S&P 500 stocks dropped 9% in April 1970. April 2015 could be similar.
Our source for 1970 data is http://www.moneychimp.com/features/monthly_returns.htm
Here are the reasons April 2015 could be awful.
1. April 2015 is a buyback blackout period when corporations report earnings.
The dark columns in the above chart are the blackout months in which corporations cannot buy their own stock when reporting earnings. After a blackout period in January 2015, corporation buybacks are the reason for the lift in the stock market in February 2015. In fact, corporations have been buying twice as much stock as regular investors. Like January, corporations cannot buy back stock during quarterly earnings reports in April 2015. Here is more info.
2. Oil companies will be reporting terrible earnings in April 2015
The price of oil has stayed around $50 a barrel, half of what it was a year ago, which is causing havoc with earnings.
“The Energy sector has witnessed the largest increase in the expected earnings decline (to -63.5% from -29.5%) since the start of the quarter. Overall, 30 of the 43 companies in this sector have seen EPS estimates cut by 20% or more to date”, per the website factset.com.
Also factset.com reports, “the Energy (-38.0%) sector is projected to report the largest year-over-year decrease in sales for the quarter.”
3. Forward P/E Ratio is 17.0, above the 10-Year Average of 14.1
According to factset.com, “The current 12-month forward P/E ratio is 17.0. This P/E ratio is based on Thursday’s closing price (2089.27) and forward 12-month EPS estimate ($123.03).
At the sector level, the Energy (26.9) sector has the highest forward 12-month P/E ratio.
The P/E ratio of 17.0 for the index as a whole is above the prior 5-year average forward 12-month P/E ratio of 13.7, and above the prior 10-year average forward 12-month P/E ratio of 14.1.“
In other words, stocks are overpriced and the P/E ratio is the highest it has been for 10 years.
The good news is that corporations will probably buyback over $170 billion shares in May 2015 as the blackout period ends.