Investors who enjoyed a strong first quarter in the stock market may need to prepare themselves for a bumpy ride ahead, according to CFRA’s Sam Stovall. While the S & P 500 saw its best first quarter performance since 2019, the beginning of the second quarter has been met with losses, signaling potential volatility in the market.
Historical Trends
Stovall points out that history has shown that a strong first quarter often leads to a tumultuous year. While a good start typically suggests a positive second quarter, it also means that equities could be more susceptible to significant declines. Past trends have shown that after strong first quarters, the S & P 500 has experienced “intrayear” declines of 5% or more in 13 out of 15 cases, with an average loss exceeding 11%.
This year, investors have reacted to stronger economic data by taking profits, amid concerns that the Federal Reserve may not cut interest rates as quickly as anticipated. However, Stovall advises investors to hold on to their winning positions and stay the course. While tech stocks may have had a rocky start to the second quarter, Stovall believes they could still outperform by the year’s end.
Despite potential volatility and expected intra-year declines, Stovall remains optimistic about the market’s overall performance. He notes that historically, strong starts like the one seen this year have often translated into double-digit full-year price increases. In fact, out of the 15 years with the strongest first quarters since World War II, 14 ended with significant gains, averaging nearly 23%.
While the market may be in for a turbulent ride ahead, Stovall’s analysis suggests that investors should remain cautiously optimistic. By sticking with their winning positions and being prepared for potential fluctuations, investors could still see a fulfilling full-year performance for the S & P 500.