Why April could be the start of a stock market recovery

The FTSE 100 started the quarter on the right foot, closing easily over 1.5% higher yesterday (1 April). Even though geopolitical tensions around the world remain high, I believe there’s a strong case to be made that April could spark a stock market recovery. Here’s why!

A mix of factors

For starters, a lot of the bad news, ranging from inflation concerns to interest rate uncertainty, has already been factored in. When expectations are low, it doesn’t take much to lift markets. Even a slight cooling in inflation data or a more liberal tone from the Bank of England committee members could be enough to get investors back on the front foot.

There’s also a seasonal angle worth considering. April has historically been a relatively strong month for stocks. This can be partly attributed to investors deploying fresh capital at the start of the new ISA year. If the first day of the new quarter was anything to go by, people are in a buying mood.

That can particularly benefit domestically focused stocks in the FTSE 250. These tend to be more sensitive to UK economic sentiment. If confidence around the UK consumer and business outlook improves even marginally, these mid-cap names could bounce sharply after a period of underperformance.

Meanwhile, the FTSE 100 might find support from its global exposure. Many of its constituents generate earnings overseas, so any stabilisation in global growth can act as a benefit. Commodity prices are another factor. If energy and metals hold firm or edge higher, that could provide a boost to heavyweight sectors like oil and mining, which carry significant influence in the FTSE 100.

Spotting opportunities

In terms of specific companies that could ride this potential recovery higher, I like 4imprint Group (LSE:FOUR). The stock has taken a 12% hit so far this year, reflecting the broader concerns in the market. However, it’s well placed to bounce back if sentiment turns.

Promotional products (the core of 4imprint’s business) are basically discretionary marketing spend. When companies feel nervous, they cut it quickly. But when confidence returns, they switch it back on just as fast. The company’s chair alluded to this in the results released in March, saying they are positioned to “take advantage of opportunities that will present themselves as economic and market conditions improve”.

It’s well-placed, even with the recent economic uncertainty. The latest full-year results showed an operating profit margin of 10.8%, unchanged from the previous year, with the group well-financed with cash and bank deposits of $132.8m.

It’s worth noting that 4imprint doesn’t manufacture most of what it sells. It outsources production and focuses on marketing and distribution. That makes it asset-light and highly cash generative. So when revenues recover, a lot of that translates through to profit.

In terms of risks, tariffs are a big one. Over half of the group’s revenue is derived from products imported from China, so geopolitical tensions and supply restrictions going forward could present a headache. Even with this, I think the company is a stock for consideration right now.

The post Why April could be the start of a stock market recovery appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended 4imprint Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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