Record-breaking April is ammunition for equity bulls

Volatility returned to equity markets with a bang this year. After making a record high in January, the FTSE 100 (UKX) had lost over 900 points before the end of March amid concerns around US trade tariffs, rising bond yields, the Facebook (FB) data scandal and tech sector valuations. But a rebound last month will go down in history as one of the best ever.

The FTSE 100 index rose 453 points, or 6.42% in April, ending the month at the highest level since 31 January, and registering the first positive month for the index since December 2017. April 2018 was also the best monthly performance since July 2013, the best April since 2009, and the ninth best month for the FTSE 100 in the past decade, with 87% of blue chip stocks posting share price gains.

April is statistically the second-best month of the year for UK equity market performance, although these monthly returns will be hard to beat in 2018.

Source: interactive investor             Past performance is not a guide to future performance

A combination of successful international diplomacy, a weaker pound, rising oil prices and supermarket sector M&A restored investors’ faith in equities. It seems a US trade war with China is avoidable, and even Kim Jung Un has struck a conciliatory tone with South Korea and its American allies.

An inverse relationship with the pound has also been crucial to the FTSE 100’s rebound because its constituents make so much money in the US, which inflates profits when converted back into sterling.

There seems little chance of a recovery in the pound near term, given poor GDP data, falling inflation, and now a period of political instability caused by the resignation of home secretary Amber Rudd.

An increase in UK interest rates this month now seems highly unlikely, putting further pressure on sterling, which could at least underpin the FTSE 100, now less than 250 points from an all-time high.

FTSE 100 winners in April

Company Ticker Price rise in April (%) Sainsbury’s SBRY 29 Micro Focus MCRO 27 Whitbread WTB 16 Tesco TSCO 15 Royal Dutch Shell RDSB 14 Morrisons MRW 14 Rentokil Initial RTO 13 BP BP. 12 Mediclinic International MDC 12 Pearson PSON 11

Source: interactive investor   Past performance is not a guide to future performance

Sainsbury (SBRY)’s came from nowhere to become the top FTSE 100 performer in April after agreeing a £7.3 billion merger with Asda. But it’s not only Sainsbury’s chief executive Mike Coupe that’s “in the money”!

Micro Focus (MCRO) staged an impressive recovery from a savage profits warning in March, reinforced by stakebuilding among US funds and activist investor Elliott. Spinning off Costa Coffee was a wake-up call to investors who chased Whitbread (WTB) higher.

Saudi Arabia’s success in pushing oil prices up towards their $80 a barrel target lit a fuse under Royal Dutch Shell (RDSB) and BP (BP.).

The Saudis need the higher oil price to justify a hefty valuation for the upcoming Aramco sale, as well as to pay for Crown Prince Mohammed bin Salman’s expensive reforms and modernisation plans, which is great news for the oil majors who only need oil around $50 to break even.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company’s or index name highlighted in the article.