The S&P 500 Nets First Best Quarter In Five Years

Wall Street Bull statue in Manhattan
Credit: Carlo Allegri / Reuters -

The S&P 500 index soared by 10.16% in the first quarter of 2024, posting gains in each of the three months to end at 5,254.35 points. Mirroring this performance, the SPDR S&P 500 Trust ETF (SPY) recorded a similar increase of 10.06% for the same period.

This remarkable growth represents the best first quarter performance for the index since Q1 2019. Throughout the quarter, the S&P 500 achieved several significant milestones, including crossing the 5,000-point mark for the first time ever on February 8, then in the weeks that followed, the index surpassed the 5,100 and 5,200 levels on February 23 and March 20, respectively. Currently, the S&P 500 sits at an all-time high.

If that’s not impressive enough, consider that when counting all of the trading days in the first three months of the year, 40% of these trading days were record closing highs for the index. You would have to go back almost a decade to find a time for when the S&P 500 index performed so strongly, including logging consecutive quarterly gains of double digits. In terms of sector performance, except for Real Estate, all eleven sectors of the S&P 500 ended the quarter in positive territory.

With an impressive gain of over 15%, Communication Services sector led the pack, followed by Energy and Information Technology, with both sectors posting gains of more than 12%. Why such a strong start for the broader index? As we’ve predicted on numerous occasions, the Federal Reserve, at the end of 2023, began to pivot towards a dovish monetary policy and multiple cuts in interest rates. Prior to that, the S&P 500 index had already risen for nine straight weeks to end the year with a 24% gain to post its best year since 2020.

The gains were also driven by the seemingly insatiable appetite for AI-related themes, particularly those surrounding the Magnificent Seven stocks, consisting of Alphabet (GOOGGOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA), were money-makers for investors. At the time, I reminded the investors that it was highly unlikely that bullish market sentiment would reverse, especially for technology stocks, particularly those that invest heavily in AI solutions.

I suggested that these stock would continue to move higher. And that’s precisely what has happened. The gains were also supported by strong economic data, which supports the Fed's anticipated rate cuts. Notably, at its policy meeting earlier in the month, Fed Chair Jerome Powell reaffirmed the Fed’s stance for cutting rates on three occasions even as higher-than-expected consumer and producer inflation were reported for both January and February.

The Fed has weighed the fact that even as inflation was slightly elevated in both months, the effect was offset by strong economic growth and jobs growth. With the quarter now out of the way, investors want to know if these gains are sustainable.

“The Fed’s reiteration of monetary easing plans despite expectations of a hotter macro backdrop predictably ushered in another wave of ‘risk-on’ trading,” said Wells Fargo analyst Christopher Harvey. “We think this upward bias to equity prices will persist in the near term.”

To be sure, a market downturn is inevitable at some point. Stocks don’t go just straight up without some sort of correction. What Harvey is suggesting is that signs of a correction aren’t here yet. What’s more, consider that there are tons of historical data that shows that strong first quarter returns are often followed by more gains by year-end. And the likelihood that interest rate cuts may start as early as June, stocks are poised to rise in the second quarter as well.

Goldman Sachs even suggested a scenario where the S&P 500 index could reach 6,000 by year’s end, suggesting potential gains of close to 15%. That remains to be seen. But when it comes to reinforcing investor confidence in the market's upward trajectory, the setup for the rest of the year looks promising.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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