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Will earnings season lift the stock market? Why experts say April could be a 'huge month'

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Welcome to our monthly stock market outlook, where we preview what the pros will be monitoring and what everyday investors should know. Knowing what's happening in the market can make you a smarter investor and help inform your long-term strategy.

The U.S. stock market had a rough March: It experienced the worst day of declines in more than three decades, the worst week and month since 2008, and the worst first quarter in history. Yet experts on Wall Street say there may be reason to be somewhat optimistic about April. 

The coronavirus pandemic, and its toll on both human health and the health of the global economy, is creating uncertainty about the future for various aspects of our daily lives. But if data continues to show a slowing in the number of daily U.S. coronavirus cases, as has happened in other regions of the world, that could make investors more hopeful about the future.

On April 6, the S&P 500 surged 7% on this type of news.

The coronavirus will continue to dominate the attention of professional investors on Wall Street in April. So will earnings season, when companies weigh in on the impact to their businesses. As a result, investors should brace for continued turbulence, at least for a while.

"There's going to be volatility because of earnings and because of the coronavirus," says Tom Martin, senior portfolio manager at Globalt Investments. "It's probably going to be the case that hope and fear are going to trade places a good bit."

Here's what you need to know about the month ahead.

'Everything centers on coronavirus'

What's happening: Monitoring the latest developments of the pandemic will remain the top focus both on and off Wall Street in April. "Everything centers on coronavirus," says Eric Freedman, chief investment officer at U.S. Bank Private Wealth Management. 

It's not just about tracking the number of cases. Investment pros are also monitoring the pandemic's impact on various industries and economic reports, like the weekly number of Americans who filed for unemployment benefits that's released each Thursday. "The jobless claims are what's most important to us because it's the most real-time indicator of what's happening," Freedman says. In recent weeks, nearly 10 million American workers filed for these benefits, shattering earlier records.

Why it matters: When the virus cases could peak is something that Freedman and his colleagues are tracking. That could determine what life looks like in the foreseeable future and how quickly the global economy can recover and return to some version of normal. "In lieu of a vaccine, the question before us is: How is the market going to determine progress?" Freedman asks. 

What it means for you: Freedman anticipates stock prices could fall further in the weeks ahead, though "it's tough to say definitively" if the S&P 500 will tumble below the March 23 low. That means you can likely expect more of the daily lurches higher and lower that have become common in recent weeks, though some clarity about the economic toll could come in mid-April when companies begin reporting results for the first quarter.

In lieu of a vaccine, the question before us is: How is the market going to determine progress?
Eric Freedman
chief investment officer, U.S. Bank Private Wealth Management

'It's not a 100% coronavirus-quarter' but earnings will be important

What's happening: The multiweek period known as earnings season — when publicly traded companies disclose results for the most-recent quarter — kicks off midmonth. Between now and the end of April, more than 25% of the companies in the S&P 500 will report their results for the first quarter that ended March 31.

Why it matters: The upcoming earnings season will only show how some of corporate America dealt with the outbreak in March, and "it's not a 100% coronavirus quarter like the second quarter will be," Martin says. Still, he adds, there will be a lot of valuable information to come from this period, like:

"That kind of information is going to be important," Martin says. "April is going to be a huge month."

What it means for you: Even during normal times, you can expect some wild swings in prices of individual stocks that can affect the broader market. And those moves may be more exaggerated now. For some companies the stakes are even higher: Whether their businesses will survive this period of shutdown and if employees come back to work, how quickly that happens, Martin says.

As has been the case in the past few months, Martin cautions investors not to make any radical changes to investment strategy in the weeks ahead. Instead, now might be a good time to reassess what your day-to-day level of cash is and adding to your emergency fund, he says.

April is going to be a huge month.
Tom Martin
senior portfolio manager, Globalt Investments

The bottom line

Historically April is one of the strongest months of the year for the market, thanks in part to earnings season, with the S&P 500 rising 1.3%, according to figures compiled by Yardeni Research. While the current circumstances for the market are unprecedented, there's reason to be optimistic that there will be more clarity about the outbreak by month's end.

Whether or not the market can rebound further in April will depend on the toll of the pandemic in the weeks ahead. Through April 6, the S&P 500 has jumped 3.1% in the month.

Still, the major benchmarks remain in bear market territory. Of the past 12 bear markets since World War II, on average, the downturns lasted about 14.5 months and it took another two years for the market to recover, for a total duration of about three years, according to analysis by CNBC and Goldman Sachs.

Regardless of what happens in the coming month, remember that you don't need to make any changes to your long-term investing strategy based on short-term events. The market's performance in 2019 is a good reminder to stay the course.

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