“Oh no, the market is at an all time high. Time to sell.”
Not so fast. Let’s dissect a few charts below.
A good start to the year generally equals a start to a good year (read it again and let that sink in). Since 1950, when January and February are positive the S&P 500 has averaged a 19.9% return for the calendar year. There are no historic instances of a negative return for the year although 1987 was close to negative after an October meltdown and recovery.
It’s not just January and February that have offered positive returns. The S&P 500 has rallied more than 20% over the last four calendar months. That’s only happened 15 other times since 1950. In every one of those instances, the S&P 500 was higher over the next 6 months and the next 12 months. 15 for 15.
Need more reason for optimism? There are 25 other instances in which December, January and February were all positive. In every one of those 25 instances, the market rally continued: driving the S&P 500 higher over the next 12 months. Only one of those 25 instances included a temporary decline of more than 10% (2011).
In other words, market strength is usually contagious. When investor optimism turns positive it typically stays that way for longer than one might expect. With that said, that isn’t the time to throw caution to the wind. But as we mentioned in our last blog post. Let’s embrace the goldilocks environment while it’s here. Now isn’t the time to be overly conservative despite the recent run-up and the temptation to “sell high” and lock in profits.
We continue to see opportunities in dividend paying value stocks both large and small. There are also reasonably attractive valuations in sectors such as Energy, Healthcare and Utilities that weren’t swept up in the 2023 rally as much. Valuations in the small cap arena seem relatively attractive as well.
What might a strong stock market mean for the presidential cycle? Here is an interesting chart from LPL research. The performance of the S&P 500 has done a pretty stellar job of predicting the outcome of the election. If the stock market is positive in the three months leading up to election day, the incumbent (Biden in this case) is likely to win again. If the stock market is negative in the three months leading up to election day, then the challenger (Trump in this case) is likely to win. This predictor has been correct in 20 of the 24 possible instances in the past. However, it was incorrect in 2020 when the market strength indicated a victory for the incumbent.
Nevertheless, if history holds true, recent strength in the market could lead to further strength which should improve the chances of an incumbent’s party victory in November.
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Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance may not be indicative of future results.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brady Raanes and not necessarily those of Raymond James.