The S&P 500 (SP500) on Thursday advanced 10.16% for the first quarter of 2024 it will end at 5,254.35 points, recording gains in the three months of the quarter. The accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) added 10.06% for the first quarter.
The benchmark index recorded its best first quarter performance since the first quarter of 2019. In the process, the meter surpassed several historical milestones: in February 8thclimbed 5,000 points for the first time and continued to clear the 5,100 and 5,200 levels in 23 of February and March 20, respectively. The S&P 500 (SP500) is currently at an all-time closing high.
“Not a bad quarter. Nearly 40% of all trading days in the first quarter were record closing highs for the S&P 500 (SP500). The most since the first quarter of 2013,” Bespoke Investment Group noted in X (formerly Twitter), adding that the first quarter also marked the first consecutive double-digit quarterly percentage gains for the S&P (SP500) in 12 years.
The seeds of the S&P's (SP500) impressive first quarter were planted towards the end of 2023, especially after the Federal Reserve, in its last monetary policy meeting of the year, adopted a long-awaited dovish turn that led markets to discount the anticipated interest rate cuts in 2024. Meanwhile, last year's huge rally in mega-cap tech stocks on the back of the ai craze only intensified in the first quarter and was a major driver. of the Wall Street rally.
Economic data for the first quarter of 2024 largely supported the Fed's pivot toward expected rate cuts. Consumer and producer inflation were slightly higher than expected in both January and February, but Federal Reserve Chair Jerome Powell was largely ambivalent about the readings. Meanwhile, economic growth has continued at a strong pace and the labor market has remained resilient. At its policy meeting last week, the Federal Reserve maintained its forecast of three rate cuts expected this year.
“(The first quarter) follows a red-hot bull market in 2023 that has shot up like a rocket from the 2022 lows. It baffles us to see commentators who are still bearish right now. At some point the bull will turn, of course, but “We will all know when it will change, because prices will go down,” Alex King, investment group leader at Cestrian Capital Research, told Taking Alpha.
“All the geniuses are currently embarrassed by the fact that the market has not stopped rising. Our vision remains simple, that is, we are looking towards the end of the year. When inflation becomes non-transitory again and the cuts are turn into gains, well, stocks will probably fall then, but that's not likely to happen tomorrow. We remain optimistic,” King added.
Where do we go from here?
Investors now look ahead to the rest of the year to see if stocks can continue their bull run. With interest rate cuts expected in June, the current rally could possibly intensify further.
The advance of the S&P (SP500) has propelled it to surpass the mark of 5,200 points much sooner than what several high-profile brokerages predicted, since many of them had predicted a level of 5,200 only by the end of the year. Goldman Sachs recently said it sees a scenario in which continued gains in mega-cap tech stocks could push the benchmark index to 6,000.
“The S&P 500 rose more than 10%, including dividends, in the first quarter. A common question for investors is what, if anything, this has meant for the rest of the year,” Keith Lerner, co-chief investment officer from Truist, he said in a note.
The following chart from Truist shows the returns and pullbacks of the S&P 500 (SP500) after a first quarter total return of over 10%:
According to the data, after periods of a first quarter gain of more than 10%, the S&P 500 (SP500):
- It was higher in the following quarter 9 out of 11 times, with an average gain of 5%.
- It was higher the rest of the year 10 out of 11 times, with an average gain of 11%.
- The maximum decline seen at any point in the rest of the year, even when the market ultimately ended higher in 10 of 11 cases, averaged 11% (median = 6.9%).
“Historical data, which should only be used as a starting point, shows that strong first-quarter returns are typically a positive sign and tend to lead to larger market gains toward the end of the year. This is consistent with previous studies we have shown …that suggest strong price momentum tend to be a positive sign and characteristic of bull markets,” said Truist's Lerner.
“The data also suggests that investors should be prepared for normal pullbacks down the road. This is consistent with our view that investors are sticking with the primary market trend, which is bullish, and viewing pullbacks as opportunities,” he added. Lerner.
Quarterly sector performance
Regarding the quarterly performance of the S&P 500 (SP500) sectors, all 11 finished in green with the exception of the real estate sector. Communication services showed the biggest improvement, with a huge advance of more than 15% in the first quarter of 2024. Energy and information technology rounded out the top three gainers, with both rising more than 12% each.
See below for a breakdown of the performance of the sectors, as well as the accompanying SPDR Select Sector ETFs from December 31, 2023 through the close of March 28, 2024:
#1: Communication services +15.57%and the SPDR Fund of the Communications Services Select Sector (XLC) +12.37%.
#2: Energy +12.68%and the Energy Select Sector SPDR ETF (XLE) +12.57%.
#3: Information technology +12.48%and the technology Select Sector SPDR ETF (XLK) +8.20%.
#4: Finance +11.97%and the Financial Select Sector SPDR ETF (XLF) +12.02%.
#5: industrial +10.57%and the SPDR Industrial Select Sector ETF (XLI) +10.51%.
#6: Materials +8.44%and the Materials Select Sector SPDR ETF (XLB) +8.59%.
#7: Medical Care +8.40%and the Healthcare Select Sector SPDR ETF (XLV) +8.32%.
#8: Consumer Staples +6.81%and the SPDR Select Sector Consumer Staples ETF (XLP) +6.01%.
#9: Consumer Discretionary +4.75%and the SPDR Consumer Discretionary Select Sector ETF (XLY) +2.84%.
#10: Utilities +3.59%and the Utilities Select Sector SPDR ETF (XLU) +3.66%.
#11: Real Estate -1.12%and the SPDR Select Sector Real Estate ETF (XLRE) -1.32%.
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