After the equities market plunged toward a correction by February and recouped the loses all within the first quarter, the big swings could augur a good year for stock exchange traded funds.
The SPDR S&P 500 ETF (NYSEArca: SPY) plunged about 10% from the start of the year through February 11 and then surged 12.7% through March 31. SPY is now up 1.6% year-to-date.
The S&P 500 has experienced a sharp pullback followed by a speedy recovery only a handful of times, but after each instance, the stock market typically ends out the year with a bang.
The S&P 500 has dropped over 10% from a closing high and rallied over 10% from a closing low at some point in the first quarter only nine times in the past century, according to Bespoke Investment Group.
On average, the S&P 500 has seen a gain of 28.3% or a median return of 32.0% for the remainder of the year with positive returns 75% of the time after a negative and positive 10% swing over the first quarter.
More recently, the S&P 500 plunged 27.6% in the first quarter of 2009 before the index surged 23.1% and ended the year up 39.8%.
While past performances are not necessarily indicative of future returns, the volatility in prior first quarter S&P 500 performances and subsequent rally for the rest of the year may reassure investors that the equities market can continue to perform.
“It does provide some encouragement that the rebound since the February lows could at least serve as a solid foundation for a respectable performance for the remainder of the year,” Bespoke said.
[related_stories]Market observers have noted that fears of the U.S. economy facing an imminent recession have not been substantiated, and areas of the market are improving, such as in the energy space where depressed oil prices saw a slight recovery.
“The key question at hand is whether the recent rebound in risk assets was merely a bear market rally and a new downside collapse is under way, or if the pending pullback is an opportunity to further accumulate equities in an unfolding bull cycle upturn,” Robert Sluymer, a technical analyst at RBC Dominion Securities, said, the Globe and Mail reports.
Looking ahead, equities investors will be watching for improvements in company earnings where headwinds have intensified, with the markets currently wading through a so-called earnings recession – FactSet estimates profits for the first quarter of 2016 are expected to fall 8.7% year-over-year, or the fourth consecutive quarter of declines and the longest losing streak since the start of the financial crisis.
SPDR S&P 500 ETF