I continue to see the US stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time. While price action has been a bit more subdued in recent weeks following momentum gauges having gotten overbought, there remain precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff. Rallies up to SPX-5350-5400 look likely into mid-April before a consolidation gets underway. Both Treasury yields and US Dollar should be starting to roll over.
SPX has now logged five straight monthly gains, with 2024’s 1st quarter performance having exceeded 10%. As discussed yesterday, this represents the 11th best 1st Quarter since 1950.
Looking back since 1950, the top 24 instances of the best 1st quarter returns have never led to a down year. Only in the year 1987 of the top 15 1st quarterly returns did the year prove negative from April into year-end. However, as we remember, the year as a whole still turned in positive gains.
The median return after a positive string of four straight winter months of November-February has been 15% from March into year-end. This string has happened 16 times in the last 90 years and has an uninterrupted track record of gains from March into year-end.
As quarterly SPX chart shows below, SPX has been higher five out of the last six quarters and 12 out of the last 16 quarters, making the bear market of 2022 seem like a minor ordeal. MACD (Moving Average Convergence Divergence) has successfully made a bullish crossover and this indicator now is above its signal line on a daily, weekly, monthly and quarterly basis.
In the short run, I’m anticipating a rally to 5350-5400 without too much trouble before any real resistance. If the economic report in the coming days (PCE) comes in weaker than anticipated in a way that would result in DXY and ^TNX pulling back sharply, this would be a larger positive for risk assets as well, in my view.
While investors need to always be on guard for evidence of trends changing unexpectedly, the near-term trend remains bullish at this time, and should still push higher in the weeks to come.
S&P 500 Index
SPX has now achieved the 11th best performance since 1950
The track record for full-year performance when SPX has shown gains of greater than 2% in the 1st Quarter has proven quite remarkable indeed.
Of the 38 years in the first column shown since 1950, nearly 75 years ago, only one year finished with negative returns.
Moreover, only three occasions did the rest of the year turn in negative performance in the period from April into year-end as the 2nd Quarter got underway.
Overall, I view this as being a promising sign following the last five straight months of gains. While a minor pullback might occur sometime in 2nd Quarter, it looks premature at this time and the majority of warning signs that accompany major market selloffs remain absent, technically speaking.
S&P 500 Yearly Performance by 1Q Return
Five straight months of gains has typically proven quite positive for the rest of the year
As might be expected, five straight months of gains traditionally have provided sufficient momentum to propel SPX higher based on both average and median returns since 1950.
The results are shown in the table below.
April normally is positive, but lies mid-range in Median returns
Interestingly enough, April isn’t as strong on a median basis as it is when looking purely at average returns in Election years going back since 1950.
Furthermore, median performance tends to be locked between March and May for being a time that has previously not done as well.
However, until evidence arises of a potential setback caused by technical deterioration, it’s right to stick with the current uptrend, and I expect positive gains for next month.
As shown below, the average percentage chance that April is positive in Election years is 58% which excludes the fact that the past five months have been positive.
Intra-month trends in Election year April’s tends to be choppy, but positive
As shown below, most of the weakness historically in Election year Aprils has taken place between 4/5-4/12.
My own cycles show 4/20 as having importance, and gains into that time should be watched carefully for evidence of trend change.
However, April overall looks to be positive, and I anticipate the first week of April likely could materialize similar to the historical trends have shown below.
Sector rotation into Energy and Materials provides a reason for optimism, not fear of a correction
As shown below, despite Technology’s underperformance in the last month, various other sectors stepped up to provide above-average performance that bodes well for the recent broadening out in participation to continue.
On an Equal-weighted basis, Energy, Materials, Utilities and Financials performed best last month.
All four of these sectors above outperformed Technology by more than 200 basis points (b.p.) in the month of March.
While investors would be right to have concern if Technology had violated meaningful uptrends relative to the S&P 500, this minor pullback in Tech has not resulted in any trend deterioration in absolute, nor relative terms.
Overall, I am inclined to view this broadening out in market participation as being a good sign for 2024, and the lack of indiscriminate buying (AAPL and TSLA were down last month) is something I view as encouraging given broader market strength.
S&P 500 Equal Weight Performance by Sector ETF
