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Daily State of the Markets Good Morning. The question I was asked most frequently yesterday was, can it continue? No, I’m not talking about the string of glorious, summer-like days with temperatures in the 80’s (btw, that streak was obliterated in Denver yesterday as shorts and t-shirts were replaced with underlayers, fleece, and white stuff falling out of the sky) or Lindsey Vonn’s dominance on the women’s world cup. No, everyone wanted to know if the bulls’ impressive start to the new year could be expected to continue ad infinitum. Given that the S&P put up a 12-spot in the first quarter, a return that exceeded most analysts’ estimates of the S&P’s return for all of 2012, one couldn’t be blamed for (a) marveling at the dramatic turnaround in stocks, (b) remembering that trees don’t grow to the sky, and/or (c) thinking that the something’s gotta give at some point here. I mean, seriously, as the bears are fond of saying lately, enough is enough already. And yet, even after a REALLY crummy batch of PMI’s from across the pond and some differences of opinion regarding the state of the Chinese economy (the official Chinese PMI came in at 53.1, which is a good, expansionary number and above expectations, whereas HSBS’s version of the PMI was 48.3, which, of course, suggests a contraction going forward), our stock market managed to put away any and all negative thoughts, and start Q2 off on the right foot. Well, okay, I guess I should admit that the better-than-expected ISM Manufacturing report in the U.S. certainly didn’t hurt the bull camp’s cause. But getting to the question at hand this morning, can the bulls’ impressive joyride to the upside continue? First and foremost, as I wrote yesterday, it is vital to remember that Ms. Market can do anything she darn well pleases for as long as she pleases. After all, there is a reason that many believe the stock market will do whatever it can to confuse the masses. Now that we’ve got that important disclaimer out of the way, let’s go to the videotape and see what we can learn about the way the market has acted in the past when Q1 has been a rip roaring good time. But first, let’s keep in mind that since 1928, the S&P 500 has been up in the month of April more than 60% of the time and that the average gain for the month has been 1.35%. And if you look at the average rate of return as well as the percentage of time the month has shown positive returns, you have to recognize that April is one of the best months of the year for the stock market. However, that really wasn’t the question asked. No, everybody wants to know if a strong first quarter means anything with regard to the outlook for the rest of the year. So, we looked back to 1930 and identified all the first quarters of the year that produced returns of at least 10%. For the record, there were eleven before this one. The average gain during those strong first quarters was 15.21%, so this year’s gain of 12.0% wasn’t record setting by any stretch (topping the list of Q1 gains was 1975 in which the S&P popped up +21.6%). Looking ahead at the rest of the years during which Q1 sported a gain of 10% or more, there is good news and bad news. The good news is that the S&P does display a propensity to gain further ground. The S&P index was higher about 64% of the time at the end of the second quarter, 73% of the time as of the end of Q3, and finished the year higher 82% of the time. However, the bad news is that the gains going forward weren’t nearly as exciting. In fact, the average gain during the second quarter was just 1.28%. Two quarters later, the average gain was just 0.11%. But to be fair, this stat was weighed down due to the decline of -26% seen in 1930. And finally three quarters after the big Q1, the S&P was higher by a median of 6.4%. Not bad mind you, but it does appear that an exceptionally strong first quarter performance has been met with more muted returns going forward. So, can it continue? Sure, history shows the bulls do seem to have the odds on their side. However, the gains might be tougher to come by as the year progresses. As such, it might pay to curb the enthusiasm and play the game accordingly. Turning to this morning… Chinese markets were closed overnight for… wait for it… Tomb Sweeping Holiday. Also in China, the non-manufacturing PMI came in well above expectations. However, slumping markets in Europe are pushing the U.S. futures lower at the present time. On the Economic front… We will get the report on Factory Orders at 10:00 am and then the Fed minutes this afternoon. Thought for the day… “Be who you are and say what you feel because those who mind don’t matter and those who matter don’t mind.” -Dr. Seuss Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: none For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com !========> The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. !========> |
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