Macro

S&P 500's Best Start Since '98: 10.2% Q1 Surge Signals More Gains

S&P 500's 10.2% Q1 surge marks a rare start to 2024, hinting at potential gains despite looming volatility and economic sensitivities.

By Bill Bullington

4/13, 11:40 EDT
S&P 500
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Key Takeaway

  • S&P 500's first-quarter surge of 10.2% in 2024 marks its best start since 1998, with a history suggesting continued gains.
  • AI optimism and broad market participation beyond tech signal strong market fundamentals, despite fears of overvaluation.
  • Historical data shows a nearly 94% chance of further gains after an 8%+ Q1 rise, though subsequent quarters may see moderated growth.

Record First Quarter for S&P 500

The S&P 500 has marked an impressive start to 2024, with a 10.2% increase in the first three months, hitting 22 record closes. This performance is notable as it's only the fourth time since the millennium the index has seen over an 8% gain in the first quarter, joining the ranks of 2012, 2013, and 2019. Historical data from Dow Jones Market Data highlights this as a rare achievement, with only 17 instances since 1950 where the S&P 500 gained 8% or more in the first quarter. This rally follows a 24% surge in the previous year, sparking debates among skeptics about the sustainability of this growth, particularly with AI enthusiasm driving much of the tech sector's performance. However, the broadening of market drivers beyond tech, with significant contributions from the Health Care and Consumer Staples sectors, provides a solid foundation for optimism.

Earnings Season and Market Dynamics

The onset of the earnings season brings a critical focus on corporate performance, with early reports from banks indicating a healthy fundamental picture despite concerns about meeting high growth expectations. Citigroup and UBS have maintained positive outlooks for the market, with Citigroup's bull case for the S&P 500 at 5700 and UBS expecting full-year earnings to hit $245 a share. The strong economic backdrop, evidenced by robust labor market and manufacturing data, supports expectations for solid earnings growth across various sectors. This optimism is tempered by the recent market dip following March's higher-than-expected inflation data, which has delayed anticipated interest rate cuts, underscoring the market's sensitivity to economic indicators and Federal Reserve policies.

Volatility and Historical Patterns

CFRA's Sam Stovall warns of potential volatility following the strong first quarter, with historical patterns suggesting a nearly 94% chance of further gains throughout the year, albeit possibly at a slower pace. The analysis of past performance indicates that while a strong first quarter often leads to a positive year, it can also precede significant market corrections. The average loss during such volatile periods has exceeded 11%, highlighting the importance of cautious optimism and strategic positioning in the face of potential market fluctuations.