What the first quarter of 2017 tells us about the stock market
The quarter ending March 31 showed impressive returns. The S&P 500 gained 5.5%, outperforming the Dow Jones Industrials, but underperforming the Nasdaq, which jumped almost 10%.
Source: barchart.com
The Nasdaq benefited from a rally in tech firms led by Apple and Facebook, which climbed 24.4% and 23.7%, respectively. The Dow, on the other hand, suffered the most from the uncertainties surrounding Trump’s policies.
Meanwhile, the S&P 500 just closed for the 100th trading day in a row above its 50-day moving average, an indicator of short-term trend. According to LPL Research, this only happened 17 times before. Does this mean that a big correction is about to take place? Not necessarily. In fact, on average, in the next 6 months of the year, the S&P 500 gained a further 6.1% and finished positive about 70% of the time.
Source: LPL Research
The first quarter also highlighted different performances across the world. If we look at international indexes, we see how both the American and the Australian markets underperformed relative to Europe. The Euro Stoxx and the German Dax gained 6.7% and 7.3%, respectively. This confirms our earlier thesis about European stocks starting to break out (read more here). We believe this trend is set to continue.
Winners and losers in the first quarter of the year
Source: The Wall Street Journal
For the S&P 500, the last quarter was the best since the fourth quarter of 2015, and the best first quarter since 2013. According to history, this is a sign of strength. As LPL Research shows, whenever the S&P 500 gained 5% or more in the first quarter, the index had a full year return of 20.2% on average. Also, a strong first quarter meant that the S&P 500 finished the year with positive returns 95.8% of the time.
Source: LPL Research
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The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs.