The first quarter of 2023 was kind to investors, as the S&P 500 gained 7% over the three months. It’s a sign that bodes well for the rest of 2023, historically speaking.
Data from Morningstar Direct shows that in 16 out of 16 times when the S&P 500 has seen a gain of 7% or more in Q1, it finished with positive returns for the full calendar year—averaging 23.1%. The even better news is that 15 out of those 16 years saw positive returns for each remaining quarter too!
So why are these strong Q1 gains indicative of further success? History suggests there are several factors at play here:
1) A good start can provide momentum, which carries through into later quarters; and conversely, if stocks begin poorly, they may struggle to recover throughout the year.
2) Companies tend to report more robust earnings growth during this period due to annual tax payments not yet being required (as opposed to other quarters where companies have already paid taxes). This allows them to generate higher profits, and therefore share prices increase accordingly.
3) When people observe an upwards trend early on in a given period – such as a quarter or yearly cycle – they become optimistic about future performance, leading them to make bullish investment decisions that help sustain market gains going forward.
4) The US economy also tends to see increased activity during this time frame due its seasonal nature i.e., businesses hire staff ahead of holiday shopping seasons, etcetera… boosting economic indicators like GDP and employment figures overall - hence increasing investor confidence even further.
So what should investors do now? It’s worth noting that, of course, there is no guarantee that the S&P 500 will finish 2023 in positive territory and any investments made carry risk; so always be sure to consult with a financial advisor before making decisions about your portfolio.
However, for those willing to take on more risk - now could be an opportune time.
In conclusion: while past performance isn’t necessarily indicative of future returns, historically speaking, strong Q1 gains like we saw this year suggest a bullish outlook for the remainder of 2023 – something all investors should take note of!