The S&P 500 is on track to gain 10% this quarter.Resist the urge to time a pullback | Private Equity Weekly
Man, what a run it was. The S&P 500 ended the first quarter on an epic winning streak: The index is up 10% year to date and a staggering 25% over the past five months. Any 25% gain in five months is very rare. Since 1950, only seven other periods have been better: The S&P 500 rose 24.6% every month through March 2024 (currently five months in a row) and 35.4% on August 31, 2020 (five months in a row). Monthly increase) 27.9% increase on August 31, 2009 (six consecutive months) 33.6% increase on January 31, 1999 (five consecutive months) 25.8% increase on March 31, 1986 (six consecutive months) 1982 An increase of 31.3% on December 31, 1975 (for six consecutive months). An increase of 32.9% on May 31, 1975 (for six consecutive months). An increase of 28.4% on February 28, 1975 (for five consecutive months). Is a retracement imminent? Maybe, but the momentum is very strong. Naturally, with a run like this, everyone is now making pullback predictions: “This can’t go on any longer,” is a common refrain. “We’re going to cut 10 percent. We have to, right?” Not necessary. The momentum is very strong. Strategas’ Todd Sohn noted that the S&P 500 is currently trading about 12% above its 200-day moving average (showing very strong momentum), “While mean reversion is a threat, forward 6-month returns tend to deviate” above historical averages. ” His point: Even after these epic runs (the S&P 500 is up 25% or more in five months), six months later, the market is mostly higher: Epic Five Months Consecutive increase (five months) Up 35.4% on August 31, 2020 (up 8.9% six months later) Up 27.9% on August 31, 2009 (up 8.2% six months later) Up 31 January 1999 33.6% (up 3.8% six months later)) Up 25.8% on March 31, 1986 (down 3.1% six months later) Up 31.3% on December 31, 1982 (up 19.5% six months later) 1975 Up 32.9% on May 31 (up 0.1% six months later) Up 28.4% on February 28, 1975 (up 6.5% six months later) After a similar run, the S&P 500 rose 6.5% six months later Only one in seven has fallen in price. It’s not just large-cap tech stocks: Market breadth has been expanding Another chestnut – “It’s all the Big Seven!” ” — Totally wrong. Technology stocks are still driving the market higher this quarter, but their influence has waned in March and other industries have also posted strong gains. Some S&P 500 sectors are up 15% year to date Technology is up 12% Energy is up 11% Financials is up 11% Industrials is up 10% Healthcare is up 8% The only sector to fall this quarter is real estate, which is down 3% for the period. This isn’t just a gain for a handful of large-cap stocks: Market breadth has been Expand. About 70% of stocks in the S&P 500 are in the green this year. Since mid-January, the S&P 500’s advance/decline has been steep: Far more stocks are advancing than declining each day. So is the Russell 1000 As such, it is a measure of the broader market. Broader market strength is critical to market gains. “In major bull markets,” veteran market observer Ned Davis said in a recent report Divergence and concentration can also be seen in the trend, so it is only critical when the trend loses strength due to poor breadth, which means that most stocks are not participating in it.” to clients. “We saw continued strength in the S&P 500 every month from November through February, and that was almost always followed by more months of strength,” he said. “Even with this new high, Breadth is a cyclical peak, but the hypothetical record shows that historically it has preceded market peaks by an average of about 39 weeks, so I conclude that the cyclical bull market is still alive and well.” All this What does it mean? Some degree of decline after such huge gains seems to make sense. Given market history, it probably doesn’t make sense to think you know when to time these dips, or to try to judge whether pullbacks will be short-lived and shallow. Alec Young, chief investment strategist at MAPsignals.com, told me that given the progress we’re seeing and the breadth of the market, “it’s more profitable to hang on than try to time the market.” “When we have big moves like this, the market tends to do a lot better than usual,” he said. “It’s probably a lot better to just sit back and enjoy the gains.”
