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A Goldilocks First Quarter Has Bulls Smiling

A Goldilocks First Quarter Has Bulls Smiling

April 09, 2021
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Stocks have kicked off the year in a strong fashion, and history shows this may give reason to be optimistic for the rest of the year. After a solid—but certainly turbulent—year in 2020, the S&P 500 Index has continued to set new all-time highs in 2021, returning 5.8% in the first quarter.

“Momentum breeds momentum, but you may not want too much of it,” said LPL Financial Chief Market Strategist Ryan Detrick. “Hitting singles and doubles has historically been the sweet spot for first quarter returns.”

As shown in the LPL Chart of the Day, returns between 5-10% have been the “Goldilocks” level in the first quarter, with an average return of 12.4% through the rest of the year.

View enlarged chart.

Returns through the rest of the year have historically been the worst when the S&P 500 is negative in the first quarter, averaging just 3.1%. However, too much momentum in the first quarter may not be ideal, either. When the S&P 500 has returned more than 10% in the first quarter, returns through the rest of the year have averaged 6.5%.

1987 is a year that is often referred to as the year of the “blow-off top,” as the S&P 500 returned over 40% through its peak in August, with over a 20% return in the first quarter alone. This was the only year with a first quarter return greater than 10% that was negative through the rest of the year, but removing 1987 from the data only raises the average to 8.7%, not enough to beat the 5-10% return group.

 

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