Shouldn’t We Be Enjoying this Ride?

We often say that data is our love language at Blueprint Investment Partners. So, any time the market displays behavior we think might be interesting, we love to explore it. Sometimes that exploration results in something that truly is interesting, and sometimes it turns out to be nothing. Either way, the process of examining the data is endlessly fascinating for us.

Last year (2023) was a classic example of this. As the first half of the year closed on a tear, we wanted to see how it compared to other strong-performing first halfs, as well as how the year typically concluded under such circumstances. We found 2023 was indeed among the best starts in the S&P 500 Index. Moreover, following a top-10 performance during the first half of the year, the index always ended the year higher than its mid-year close, never lower. This study set the stage for an interesting real-time experiment throughout the remainder of 2023, as the index declined and appeared on pace to finish lower, then rallied in the last 60 days, and end higher once again.

Fast forward to 2024. Another similarly strong start has our attention. Given the fast start for the year in equity markets, we became curious where this year’s first quarter ranks historically and what the subsequent returns have looked like. To examine this, we went back in our data archives and pulled out S&P 500 Total Return data going back to 1928. This near-100-year sample gives us 96 first-quarter observations to analyze.

We found that out of 96 first quarters since 1928, 2024 is at the 15th-best position, with a return of just over 10%. To get in the top 10, the index would have needed an additional 3% return. Breaking into the top five would have required an additional 5%. In case you’re wondering, the best first quarter since 1928 occurred in 1975, with the benchmark index returning a scorching 23%. The average return of this group is just over 15%, and the overall average for Q1 is 2.5%.

Best Q1 Performance for the S&P 500

Source: ICE, S&P 500 TR, 10/1/1928 to 3/27/2024

So what happens from here? Well, if you are expecting an answer other than “we don’t know,” then welcome to the Blueprint Investment Partners Co-Founders’ Note, since you must be new here.

It probably sounds like a broken record now (by the way, I wonder if younger financial advisors know what that expression means?), but as trend followers we believe the best predictor of what a market will do is what it is doing. So with trends up and our portfolios situated as described above, our expectation is for that to continue.

With that said, it can be useful to look at what has happened before, if for no other reason than to remind ourselves that anything can happen and we should prepare accordingly. For instance, the data shows that out of the top 14 (ignoring 2024) Q1s, only two finished the year lower, but boy were they biggies (1930 and 1987). With those two outliers included, the average April to December return among this top-14 group is 5.9%.

Except for 1930 and 1987, the market has generally shown consistent persistence after a strong first quarter. We suspect many would argue that enhanced market and regulatory controls instituted during the last several decades make the risk of another ’87-style crash very low. That’s probably correct, but we wouldn’t do anything different regardless.

The general conclusion is that good starts historically correlated with good finishes. The beauty of a systematic investing process, in our opinion, is that it doesn’t matter ultimately. With prices trending higher and volatility remaining low, we think investors should enjoy these periods and stop worrying about what happens next. For financial advisors who partner with Blueprint Investment Partners, we believe this is particularly true since our strategies stand ready to trigger action if prices dictate it.