God, what a run it was. The S&P 500 is ending the first quarter on an epic winning streak, with the index up 10% year to date and an astonishing 25% over the past five months. A 25% increase in any five month period is a very rare event. Since 1950, there have been only seven other times when the performance was better: the S&P 500’s epic monthly gains. Through March 2024, up 24.6% (current five-month period) August 31, 2020, up 35.4% (five-month period). August 31, 2009 up 27.9% (six month period) January 31, 1999 up 33.6% (five month period) March 31, 1986 up 25.8% (six month period) December 31, 1982 up 31.3% (six month period) May 31, 1975 up 32.9% (six month period) February 28, 1975 up 28.4% (five month period) Imminent pullback? Perhaps, but the impulse is very powerful. Naturally, with this development of the situation, everyone is now predicting rollbacks. “This can’t go on,” is the chorus throughout. “We’re going to back down 10%. We have to do this, right?” Not necessary. The impulse was very strong. Noting that the S&P 500 is currently trading about 12% above its 200-day moving average (indicating very strong momentum), Strategas’ Todd Zohn notes that “while mean reversion is a threat, forward six-month yields have tendency to become distorted.” above historical averages.” His point: Even after such epic runs (when the S&P 500 rose 25% or more over a five-month period), after six months, the market is up most of the time. months to go) August 31, 2020 up 35.4% (up 8.9% six months later) August 31, 2009 up 27.9% (up 8.2% six months later) January 31 1999 up 33.6% (up 3.8% six months later) March 31, 1986 up 25.8% (down 3.1% six months later) December 31, 1982 up 31 3% (up 19.5% six months later) May 31, 1975 up 32.9% (up 0.1% six months later) February 28, 1975 up 28.4% (up 6 .5% six months later). Only once in seven times, in 1986, did the S&P 500 decline six months after a similar rise. These aren’t just large-cap tech companies: the breadth of the market is expanding. Another chestnut: “It’s all The Magnificent Seven!” – this is simply wrong. Technology is still lifting the market this quarter, but its influence has waned in March, and other sectors are also seeing strong gains. Year-to-date in some S&P 500 sectors, communications services are up 15%, technology is up 12%, energy is up 11%, financials is up 11%, industrials is up 10%, and healthcare is up 8%. . And it’s not just that a few large-cap stocks are rising: the breadth of the market is expanding. About 70% of S&P 500 stocks are in the green this year. The S&P 500 has been rising/falling since mid-January, with far more stocks rising than falling each day. So does the Russell 1000, an even broader measure of the market. This broader market power is critical to market development. “Divergences and concentrations can also be seen in major bull markets, and are therefore only critical when the trend loses steam due to poor breadth, meaning most stocks are left out,” a seasoned watcher said in a recent note. Ned Davis Market. clients. “We saw a sustained rise in the S&P 500 every month from November through February, and this was almost always followed by new months of gains,” he said. “Even if this new breadth high was a cyclical peak, hypothetical data shows that historically it occurred on average about 39 weeks before the market peak, so I conclude that the cyclical bull is still alive and well,” Davis said. What does all of this mean? Some decline after such tremendous success seems to make sense. What may not make sense, given the market’s history, is thinking you know when to time a decline or trying to figure out whether a pullback might be short and shallow. Given the progress we’ve seen and the breadth of the market, “it’s much more profitable to stay put than to try to time the markets,” Alec Young, chief investment strategist at MAPsignals.com, told me. “Markets tend to do much better than usual when we have big moves like this,” he said. “You’re probably much better off just sitting there.”
