UK stocks led the way in April but is it time to sell?

So far this year, the UK stock market has risen in three out of four months. We look at what just happened and which way share prices might go in May.

Global stock markets were back to winning ways in April, reinforcing the month’s position as the strongest of the year.

A banking crisis in March, triggered by the collapse of Silicon Valley Bank (SVB), had ended an impressive start to 2023. Investors have clearly overcome some of the stress it caused.

The FTSE 100 ended April with a 3.1% gain, the FTSE All-Share added 3% and the more UK-focused FTSE 250 index finished up 2.6%. Even the AIM market of small-cap growth stocks jumped nearly 2.6%, clawing its way to almost breakeven for 2023.

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Top blue-chip stocks were healthcare giant Smith & Nephew (LSE:SN.), bookmaker Entain (LSE:ENT) and insurer Admiral Group (LSE:ADM), all with double-digit gains. Barclays (LSE:BARC) did well, up 9.7%, BT Group (LSE:BT.A) rose 9% and Taylor Wimpey (LSE:TW.) 7.8%.

UK stocks put international peers in the shade. Switzerland was best of the rest, up almost 3%, closely followed by the Japanese Nikkei.

US markets were saved from embarrassing deficits by a tech sector rally late in the month. The S&P 500 added 1.5% in April and the Nasdaq Composite a meagre 0.04%. The tech index had been down 1.3% for the month until impressive results from Facebook owner Meta Platforms Inc Class A (NASDAQ:META). Quarterly figures from Google parent Alphabet Inc Class A (NASDAQ:GOOGL), Comcast Corp Class A (NASDAQ:CMCSA) and Amazon.com Inc (NASDAQ:AMZN) also gave the sector a boost.

However, traders on Wall Street, in the City and other major financial centres remain anxious about any possible consequences for the banking sector further down the road.

High inflation and the interest rate hikes used by central banks to control it also continue to hog headlines. Policymakers tread a fine line between raising borrowing costs to tackle rising prices, and causing a recession by being too aggressive.

That’s why the eyes of every economist are currently fixed primarily on the US Federal Reserve to see what chair Jerome Powell and his colleagues do next.

There was no policy meeting in April, but US GDP came in lower than expected, implying a run of nine rate rises since March 2022 is beginning to have the desired effect.

Next Fed announcement on 3 May is tipped to include a 25-basis point increase in the fed funds rate to 5-5.25%, the highest since 2007.

Should you sell in May and go away?

Should you “Sell in May and go away, come back on St Leger Day”? We ask the same question this time each year, as the old and much discussed City adage still gets investors talking, wondering whether it’ll ring true this year.

The saying has its origins in days gone by when wealthy traders would leave the stifling heat and stench of London for the countryside, and to frequent sporting events like the cricket, Henley regatta, horse racing and other summer pursuits. It meant not much business got done during the summer months until the St Leger Stakes - the final Classic of the British Flat season - had been run mid-September.

Statistics show that this still tends to be the case, although now it’s the holiday season for big hitters and ordinary folk alike, and summer is a quieter period in terms of trading volumes. That means less liquidity, which can lead to some more erratic market movement.

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But following the adage and selling your portfolio at the end of April or beginning of May would have been a waste in recent years. Only once in the past decade has the FTSE All-Share index lost money in the month of May. Excluding the decline of 3.5% in 2019, you would have made between 0.2% (2016) and 3.9% (2017). The average return for the market in May over the past 10 years is 1.16%.

Whichever year you choose, there will have been global political or economic influences on stock market behaviour. And 2023 is no different.

Central banks are tasked with playing Goldilocks – raising interest rates just enough to reduce inflation but not too much that we slide into recession. While the UK economy avoided a technical recession early this year – two consecutive quarters of economic contraction - current thinking is that the US will experience some kind of slowdown this year. When America sneezes we all catch a cold.