The stock market results for 2019’s first quarter are in…
Stocks were slaughtered in the last quarter of 2018. But they rebounded powerfully in the first quarter of this year.
And that could be a sign of good things to come for markets in 2019.
The “first quarter barometer”
I’ve talked about the “January barometer” here before. It says that markets tend to follow the trend set in the first month of the year – if stocks are up in January, they tend to end the year positive, and if markets are down in January, they’ll wind up falling for the full year.
Broadly speaking, the January barometer is generally accurate when shares rise in January (that is… when they’re up in January, they’re usually up for the full year). But the January barometer is a lot less accurate when markets fall during the first month of the year.
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So… I decided to see if there’s also a “first quarter barometer” that predicts how markets will end for the year… that is, if they’re up in the first quarter, they’ll end the year positive. If they’re down, they will end down.
(This is a bit of a cheat… the first quarter is, after all, one-fourth of the year. January is just one-twelfth of the year. Simply because more of the year has passed by the end of the first quarter, you’d expect it to be a better predictor of full-year performance.)
So what did I find? Like the January barometer, the first quarter barometer is a lot more accurate when it ends on a positive note – and it’s about as accurate as the January barometer.
For Hong Kong, a positive first quarter has predicted gains for the full year 69.2 percent of the time since 1975. For Shanghai, a good first quarter has been accurate 55.6 percent of the time since 1991. For the S&P 500, a good first quarter has foreshadowed an up year a bit more than three-quarters of the time.
Like the January barometer, the first quarter barometer isn’t as accurate when the year begins negatively.
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The chart below shows how markets have performed over the full year when they’ve been down in the first quarter. For China, a negative first quarter resulted in a loss for the full year 60 percent of the time. For Singapore, a down first quarter resulted in a loss 52.9 percent of the time. And for the Thailand market and MSCI Asia ex Japan index, it was accurate only one-third of the time.
What the first quarter barometer says about this year
In the first quarter of 2019, the S&P 500 rose 13.6 percent and the MSCI Asia ex-Japan index was up 11.4 percent. China boasted the biggest climb, with 27 percent, and Hong Kong followed with 12.6 percent. Malaysia is the only market that fell during the quarter, by 0.7 percent. However, since 1977, Malaysia’s yearly performance has been negative following a first quarter in the red only 40 percent of the time.
So based on past performance – which of course is no assurance of anything – a good first quarter bodes well for markets in the MSCI Asia ex-Japan index, particularly Indonesia, Hong Kong and Singapore – as well as the S&P 500.
Of course, there’s nothing inherently special about the first quarter – and there is no assurance that historical precedent will hold. But the first quarter barometer probably bodes well for stock markets this year.
Publisher, Stansberry Pacific Research