On Wall Street, the next six months (from May to September) have the reputation of being a difficult period, according to the adage “Sell in May and don’t come back until ‘St. Leger’s Day’ (early October),” more popular under : ” Sell in May and go away.”
Since 1945, the data compiled show that the S&P 500 has risen by an average of just 2% between 30 April and 31 October. However, over the following 6 months, between 31 October and 30 April, the benchmark index posted a more solid average rise of almost 7%…
However, members of JPMorgan’s trading room extracted a more detailed but shorter statistic. Over the last ten years, the S&P 500 has recorded an average return of 1.5% in May and an increase of 1.9% in June. Yields were even higher in July, with an average of 3.4%. The benchmark index also rose by 0.9% in August and 0.7% in October, while falling by 0.5% in September.
But to come back to the present, April was a remarkable month, as David Kruk, head of the Trading Desk at La Financière de l’Échiquier (LFDE), noted in his monthly briefing “At the heart of the markets”. The figures speak for themselves.
The S&P 500 climbed by more than 10%, its best month since November 2020 and the second best April since 1945. The Nasdaq Composite rose by more than 15%, with an exceptional run of 10 consecutive sessions, as David Kruk points out. The Nasdaq Composite recorded its best monthly performance since April 2020 and the Dow Jones Industrial Average jumped by around 7%, its strongest monthly gain since November 2020. The Nikkei is up 16% and the Korean index, the Kospi, is up 31%.
These exceptional gains by the Kospi (South Korean) index were largely fuelled by optimism over the rise of artificial intelligence, with semiconductor giants SK Hynix and Samsung Electronics leading the charge, with respective rises of 60% and 35% over the month.
A high level of pessimism preceded the rise
According to David Kruk, the context may partly explain this exceptional rebound. At the beginning of April, Bank of America’s regular survey showed a high level of pessimism, a very cash position and a high level of protection among market participants. The call from a broker received by David Kruk on1 April was so unusually pessimistic that it surprised the head of LFDE. At the beginning of April, the market hit a low point, giving weight to the theory of contrarian investing, which encourages buying when pessimism is high, and to another well-known adage: “buy at the sound of the gun, sell at the sound of the bugle”
Although May generally marks the start of a period of seasonal weakness for equities, the rise in prices could continue in the second half of May at a more measured pace, believes David Kruk.
Flow, the main driving force
David Kruk cites the flow factor as an important driver of market rises. Since the start of the year, US mutual funds have recorded a colossal inflow of $312 billion into the market.
“The current nightmare for investors is to miss the rebound. Meanwhile, some CTAs – momentum funds – which were in a bearish selling position had to chase the paper on the way up, indirectly fuelling the rise a little more,” explains the LFDE trader. It should also be noted that 15 April was the deadline for paying capital gains tax in the USA. But the levies to pay these taxes have been concentrated mainly on money market funds and little on equity funds.
Another reason for the rise is that the economy remains buoyant. Consumer spending figures remain solid, probably boosted by the wealth effect among retail investors buoyed by the rise in stock prices.
USA back ahead of Europe
Another finding is that Europe’s outperformance of the US has been reversed (3.5% better for the US in April). The return of the tech sector in the US, driven mainly by the euphoria of semiconductor prices, which rose for a record 18 consecutive sessions, was a catalyst.
The macroeconomic divergences between Europe and the United States are multiplying, with manufacturing indexes rising in the United States and falling in Europe, CITI-counted ‘economic surprises’ becoming more numerous in the United States, and interest rates that may yet fall with the Fed in the United States but rise in Europe with the ECB.
It should also be borne in mind that the US economy is an oil exporter, and has benefited from the income generated by the surge in oil prices.
Secondly, US companies are in excellent financial health. The quarterly results published across the Atlantic have been described as very good, with double-digit growth: “At the end of April, 80% of companies – compared with the historical average of 74% – had published figures above analysts’ estimates, with the outlook remaining solid. Analysts are already predicting earnings growth of 17% for 2027.
The quarterly results published by the four American giants revealed new record performances, boosted by the boom in artificial intelligence. Google is reaping the rewards of its investments, but Meta is having a harder time convincing people.
The S&P 500 at 8,000 at the end of December?
As a result, some brokers have already raised their end-of-year target for the S&P 500 to 7,500 or even 8,000, with this acceleration in earnings per share as justification. Earnings for the S&P 500 are now calculated at $332 for 2026. And then there are the company share buybacks, which have accelerated to over €500 billion in the last three months.
With oil expected to fall back to around $90 in the fourth quarter according to post-conflict projections, inflation should be better contained. And to reassure.
We expect further earnings-led gains in equities, probably in the second half of May,” concludes David Kurk. We continue to favour the United States and technology, given the more favourable profit trends in these sectors.
Pierre Puybasset, spokesman for Gestion LFDE, would like to highlight the revival and good performance of the Echiquier Agenor Mid Cap Europe fund.
Finally, for statistics aficionados, other observations look at the progression of the months of May following the 25 best April months since the Second World War. One strategist noted that the general market index rose by an average of 2% in May, ending up 88% of the time.
And “During the years of the Trump presidency, the S&P 500 has tended to hit its spring lows between late March and early April before posting significant gains until the end of the year”, according to Trader’s Almanac, the famous US statistics book.
