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Quarterly Review Preview

The S&P 500 has eked out the tiniest of gains thus far in this first quarter of 2015, but it was a gain nonetheless, its 9th quarterly price advance in a row. Only three other times since WWII has the S&P 500 witnessed nine straight quarters of price gains. Each of these prior times recorded price increases in their 10th quarter averaging 8.1%.

Like most middle children, the second quarter of the year tends to get overlooked. Since 1945, the S&P 500 recorded an average price change of +1.9% during Q2, and rose in price 61% of the time. Not surprisingly, this performance improved during year three of the four-year Presidential cycle, as the “500” gained an average 5.0% and rose in price 76% of the time. Unlike T.S. Eliot’s admonition, April is not the cruelest month, at least for the market, as April’s average performance since 1945 ranked #2 of 12. For small-cap stocks, the monthly performance lineup was fairly similar to large caps. Finally, since 1989, the second and fourth quarters of each year had something in common: no sector in the S&P 500 recorded an average price decline.

S&P 500 Average Price Performance Statistics by Month Since 1945

Source: S&P Capital IQ, Yahoo.com. Past performance is no guarantee of future results.

Catalysts for the second quarter could be reverse images of the first quarter. There is little chance of paralyzing snow fall, the West Coast port strike has been resolved, the U.S. dollar may undergo some digestion of recent gains as the market anticipates the Fed will probably delay its rate-tightening program, and the bar is already set so low for Q1 EPS results that they will likely surprise to the upside.

That said, the market does appear to be entering the quarter with a bit of trepidation. The relative strength of the S&P 500 Low Volatility versus High Beta Indices is above its 200-day moving average and trending higher, indicating that investors are gravitating toward stocks with lower share-price volatility. In addition, the relative strength and moving average for the S&P 500 High Quality vs. Low Quality comparison implies a preference for companies with more consistent track records of raising EPS and dividends in each of the past 10 years. Finally, the S&P 500 Pure Growth Index is outperforming the S&P 500 Pure Value Index, showing preference this late in the bull market for companies that are already demonstrating growth in EPS and price momentum, rather than waiting for a turnaround that may never come.

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