The S&P 500 has completed its strongest first quarter performance since 2019, marking back-to-back quarterly gains exceeding 10% for the first time since 2013.
With the index reaching new closing highs 22 times during the period, it signals potential for record-breaking trends if the momentum persists, according to Jay Woods, chief global strategist at Freedom Capital Markets.
The 1st of April kicks off a new quarter on the financial calendar, and, as Woods writes in his newsletter “Spring hopes eternal” – for good reason.
Over the last 20 years, April has been the best-performing month. However, April marks the end of the historically strongest six-month period in the market, from November to April, and signals the onset of the "sell in May and go away" adage.
Analyzing historical market trends, the current five-month rally from November to March, a rare occurrence seen only 12 times since 1950, has significant implications. While such strength in the market tends to breed further strength, data indicates a potential for a pullback in the coming quarter or two, and momentum is expected to continue upward by the year's end and beyond, Woods notes.
Over the past 11 occurrences, April has closed higher nine times, but the subsequent two quarters, constituting the seasonally weakest period, present potential challenges. Rallies in Q2 and Q3 have occurred only seven times when November through March have shown positive trends.
“The real story is this - during a secular bull market, which I strongly believe we are in - after a strong run like the current one we are enjoying, the market finishes the year on a high and closes higher for the full calendar year every time,” Woods writes.
“If the past is prologue, then we still have a lot more juice to squeeze out of this current rally.”
The energy sector surprisingly emerged as the top performer in Q1, while technology and discretionary sectors faced challenges despite their usual dominance. Notable winners included Super Micro Computer, while Tesla experienced significant losses.
The Dow Jones Industrial Average saw rebounds in some sectors but struggled with negative headlines surrounding companies like Boeing. Meanwhile, the Nasdaq 100 faced similar challenges, with communication stocks weighing down its performance.
Looking at upcoming events, traders will monitor earnings reports and economic data, including the US unemployment rate, which could influence discussions around potential rate cuts. Additionally, a spin-off from General Electric and earnings releases from companies like Levi Strauss and Conagra are expected to draw attention.
In the broader economic context, recent remarks by Federal Reserve Chair Jerome Powell suggest a cautious approach to rate cuts despite solid economic growth. However, the debut of Trump Media on the Nasdaq has stirred volatility and speculation, with considerations of its fundamental value alongside the influence of former President Trump adding complexity to market dynamics.
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