Markets are poised to finish the second quarter near their highest levels of the year. While the war with Iran caused stocks to fall in March, the recovery has been swift and powerful. From April through May the S&P 500 rose 16%, one of the strongest two month advances in the last 75 years. Historically, such strong advances have usually been followed by more gains over the following 12 months. This is yet another bullish data point we can add to our list.
Can the momentum continue?
While the inclination may be that the markets can’t possibly keep going up, history suggests otherwise. Strong two month periods typically leads to more momentum, as noted in BlackRock’s most recent Student Of The Market guide:
As the S&P 500 pushes further into the green on the year and as more time on the yearly calendar goes by, we can put more confidence in a forecast that the market will finish 2026 with gains. If that’s the case, it’s worth remembering that when the S&P 500 is down on the year through March, as it was this year, but then finishes the year positive, it has averaged a rest of year return of 21%. To reach that average return this year, the S&P 500 would need to rise another 6% from current levels.
In that same vein, it’s looking more and more likely that March was the low point for the S&P 500 this year. When March represents the low point of the year for the S&P 500, the forward 1 year returns average 32%. To reach that average return over the next 10 months, the S&P 500 needs to rise 14%.
Consumers still don’t believe
Even as stocks have continued to rally, the consumer remains generally pessimistic. Ironically, a depressed consumer has historically been a bullish signal for stocks.
While the stats referenced herein are related to the S&P 500, it’s been a broad based stock market rally. In fact, most market indices are doing better than the S&P 500. US indexes holding small and medium companies are outperforming the S&P 500, as are international and emerging market benchmarks.
Of course, the market can take away the gains it has provided investors at any time. That’s why we have been frequently rebalancing portfolios and locking in fixed interest rates that remain near their highest levels of the last 25 years. In addition, gold prices have fallen 25% over the last few months, offering a potentially attractive entry point to an asset that has historically acted as a nice diversifier with stocks and bonds.
There will always be a list of things that could go wrong, but for now, plenty of things seem to be going right in the stock market.
Don’t want to miss anything?
Subscribe to our monthly newsletter for market insights.
