S&P 500 Posts Best First Quarter Since 2019

The S&P 500 finished at another record high on Thursday, capping off its best start to the year in five years as enthusiasm about artificial intelligence (AI) and hopes that the Federal Reserve will soon cut interest rates boosted sentiment and stocks. 

The S&P 500 inched up 0.1% on Thursday during a quiet pre-holiday trading session, pushing its gain for the year so far to 10.2%. That’s the highest first-quarter return for the index since 2019, when it rose 13%. The index closed at a record high in 22 of the 61 trading days in the first quarter.

Artificial intelligence was once again a thread connecting some of the index’s best-performing stocks. AI hype sent shares of Super Micro Computer (SMCI), which joined the index earlier this month, about 255% higher over the quarter. Nvidia (NVDA) continued its monster run, gaining more than 82% since the start of the year. Also in the index’s top 10: Micron Technology (MU), which credited demand for AI with its better-than-expected earnings last week, and Meta Platforms (META). 

But unlike much of last year, it’s not just AI and the so-called Magnificent Seven driving the index higher. Resilient corporate earnings and anticipation of interest-rate cuts have broadened the market rally this year. As of Tuesday’s close, the Mag Seven had accounted for 41% of the S&P 500’s year-to-date performance, down from 60% in 2023. And in March, they accounted for even less (34%) of the gains.

That is, in part, because the first quarter may have spelled the end of the Mag Seven as we know it. Tesla (TSLA) was the worst-performing stock in the index, having lost nearly 29% of its value. Apple (AAPL) was also among the index’s laggards, falling nearly 11%.

Can The Party Go On?

In a ranking of the S&P 500’s first-quarter returns since 1928, this year’s performance ranks 14th. That’s a good showing, but not so good as to be ominous, according to a note from Deutsche Bank research strategist Jim Reid on Thursday.

The five best first quarters in the past 97 years (1975, 1987, 1943, 1930, and 1976) were followed by lackluster years. On average, the S&P 500 fell 8% in the remainder of those years. In only 2 of the top 13 years did the index gain more between April and December than it did between January and March. 

And the worst-performing first quarters tended to precede stellar years. In the bottom 15 years, the index rose an average of 21% in the last three quarters. 

“Outside of the bottom 15 the sweet spot for the rest of the year does seem to be somewhere between 5-15% in Q1. If you were in that zone, the average move over the remainder of the year was +9.3%,” writes Reid. 

“There may be other reasons for the market to fall for the rest of 2024 but a strong +10% move in Q1 is unlikely to be one of them.”