So far, so good. Investors can't complain about how the stock market performed in the first quarter of 2023. The S&P 500 finished the first three months of the year up 7%. That's encouraging, especially considering the dismal results from last year.
But will the S&P 500 keep rising after a positive Q1? Here's what history shows.
Image source: Getty Images.
Looking back
How has the S&P 500 performed for the full year after starting off with a positive gain in the first quarter? The following table shows data since 1983:
| Year | Q1 Change | Full Year Change |
|---|---|---|
| 1983 | 8.76% | 17.27% |
| 1984 | (3.49%) | 1.40% |
| 1985 | 8.02% | 26.33% |
| 1986 | 13.07% | 14.62% |
| 1987 | 20.45% | 2.03% |
| 1988 | 4.78% | 12.40% |
| 1989 | 6.18% | 25.25% |
| 1990 | (3.81%) | (6.56%) |
| 1991 | 13.63% | 26.31% |
| 1992 | (3.21%) | 4.46% |
| 1993 | 3.66% | 7.06% |
| 1994 | (4.43%) | (1.54%) |
| 1995 | 9.02% | 34.11% |
| 1996 | 4.80% | 20.26% |
| 1997 | 2.21% | 31.01% |
| 1998 | 13.53% | 26.67% |
| 1999 | 4.65% | 19.53% |
| 2000 | 2.00% | (10.14%) |
| 2001 | (12.11%) | (13.04%) |
| 2002 | (0.06%) | (23.37%) |
| 2003 | (3.60%) | 26.38% |
| 2004 | 1.29% | 8.99% |
| 2005 | (2.58%) | 3.00% |
| 2006 | 3.73% | 13.62% |
| 2007 | 0.18% | 3.53% |
| 2008 | (9.92%) | (38.49%) |
| 2009 | (11.67%) | 23.45% |
| 2010 | 4.87% | 12.78% |
| 2011 | 5.42% | 0.00% |
| 2012 | 12.00% | 13.41% |
| 2013 | 10.03% | 29.60% |
| 2014 | 1.30% | 11.39% |
| 2015 | 0.44% | (0.73%) |
| 2016 | 0.77% | 9.54% |
| 2017 | 5.53% | 19.42% |
| 2018 | (1.22%) | (6.24%) |
| 2019 | 13.07% | 28.88% |
| 2020 | (20.00%) | 16.26% |
| 2021 | 5.77% | 26.89% |
| 2022 | (4.95%) | (19.44%) |
Data source: YCharts.
Those are a lot of numbers to process. Allow me to cut to the chase: In most years, the Q1 performance of the S&P 500 was a good predictor of how the index would fare in the full year.
The S&P 500 delivered a positive Q1 gain in 28 of the last 40 years. The index finished the year in negative territory in only four of those cases.
The track record wasn't as quite as good when the S&P posted a negative return in the first quarter but still wasn't horrible. The index delivered a negative return in 12 of the last 40 years. It went on to rebound for a positive gain in five of those years.
Most impressive was the predictive power when the S&P 500 finished Q1 with a gain of at least 5%. That happened 13 times over the last four decades. In all but one case, the S&P ended the year with a positive gain. And the one exception (2011), the S&P close out the year down by only $0.04 -- a minuscule decline.
Reasons for optimism
If history is any guide, 2023 could be a decent year for the stock market. There are also other reasons for optimism.
The U.S. economy continues to chug along. Unemployment rates remain low. Inflation is still too high but has shown signs of moderating somewhat. Worries that the failures of Silicon Valley Bank and Signature Bank could cause a widespread market meltdown have proven to be overblown. Sure, bank stocks have taken a beating. However, the overall stock market has held up pretty well.
Indeed, the head of one of the biggest banks -- JPMorgan Chase CEO Jamie Dimon -- has even backed down from his previous warnings that a recession was on the way. While Dimon acknowledged that "there's always uncertainty," he is now decidedly more upbeat than he's been in recent months.
No guarantees
Investors shouldn't start singing "Happy Days Are Here Again" just yet, though. There are no guarantees that 2023 will end as well as it's started.
As the old adage says, "History doesn't repeat itself." Just because the S&P's performance in Q1 has been a pretty good predictor of how the full year will go in the past doesn't mean that it's always a great indicator. Also, the U.S. is far from out of the woods when it comes to the possibility of a recession.
2023 has been a good year so far. But we're not far enough into the year to claim with any confidence that it will truly be a good year. It's still too early to celebrate.
