April 2024 Market Update

 

“Have stocks peaked for the year?” We’re hearing this question a lot lately given concerns about rising yields, uncertainty about Fed rate cuts given still-high inflation, and escalating geopolitical tensions. Therefore, with the help of DataTrek research we thought it would be helpful to look at the data on when the S&P 500 has peaked each year back to 1980 – capturing what we consider the “modern” stock market – to see what it can tell us about 2024.

First, here is a table showing the number of times (and percent of the total) that the S&P has peaked for the year in each month back to 1980, and the average total annual return during those years:

 

 

DataTrek Research

 

Three points on this data:

#1: The S&P tends to peak for the year in Q4, having done so 70 percent of the time over the last +4 decades. The reason: US equities usually post annual gains, doing so 82 percent (36 out of 44 years) of the time from 1980 – 2023. The highs for the year tend to come in Q4 because stocks have been rallying through the year. Also worth considering:

 

The S&P has always registered a positive annual return when it has peaked in Q4, and usually by strong double digits (up an average of 21 pct).

When the S&P’s high for the year was in Q4, it had a positive double-digit total annual return 87 pct of the time (27 out of 31 years). The remaining 4 years were up anywhere from 5 to 8 pct.

 

The S&P has peaked for the year in December over half the time back to 1980 (52 pct, 23 out of 44 years). It’s also hit its high nearly a tenth of the time in October and November each (4 out of 44 years for both months).

Takeaway: The S&P has much higher odds of peaking in the final quarter of this year rather than last month (70 pct versus 2 pct). Even with the index up 10 pct through its peak on March 28th, history says there’s still plenty of room for the S&P to run should it not top out until Q4 (+21 pct total annual return on average).

 

#2: Aside from the fourth quarter, the S&P has peaked most often for the year in January (11 percent of the years noted above) but always posts a negative total annual return when it does. Consider:

The S&P has topped out in January in 5 out of 44 years (11 pct, as noted above) back to 1980. The index went on to finish the year in negative territory on a total return basis every single time, down an average of 18.6 pct.

 

These years, and the causes for their poor performance, are: 1981 (high rates to fight inflation), 2001 and 2002 (bursting of the dot com bubble, 9-11 terror attacks, lead up to Gulf War II), 2008 (Financial Crisis and Great Recession), and 2022 (Fed rapidly increasing rates to combat inflation).

When the S&P peaks in January, it usually declines by double digits in that year (4 out of 5 years). The one exception was -4.7 pct in 1981. Otherwise, the index fell between 11.8 pct (2001) and 36.6 pct (2008).

 

Takeaway: The S&P has only declined by double digits in 4 years since 1980, and it peaked in January in all those years. Needless to say, had the S&P peaked in January rather than March so far this year, we’d be more concerned.

 

#3: It’s rare for the S&P to peak for the year in any given month from February through September, but gains or losses are in the single digits when it does. Here are those years and the dominant market narratives for each:

February 1994 (+1.3 pct total annual return): Rapidly rising Fed Funds to contain inflation amid strong economic growth

March 2000 (-9.0 pct): Bursting of the Dot Com Bubble

April 2011 (+2.1 pct): Greek Debt Crisis

May 2015 (+1.4 pct): Concerns about falling oil prices and slow Chinese economic growth

July 1990 (-3.1 pct): Lead up to Gulf War I, with oil prices spiking after Iraq’s invasion of Kuwait on August 2nd

August 1987 (+5.8 pct): Market structure issues caused a stock market crash in October

September 2012 & 2018 (+15.9 pct and -4.2 pct): Worries about the expiration of the Bush tax cuts after President Obama’s reelection in 2012 and a Fed policy mistake (Chair Powell overestimated the neutral rate of interest) in 2018

 

Takeaway: It would be very unusual for March to mark the peak for the S&P this year. It’s only happened one other time since 1980, when the S&P fell 9.0 pct on a total return basis in 2000 due to weakening economic fundamentals and stock market sentiment. That’s a very small sample size, but the S&P’s peak in July 1990 is a useful example of what can happen from an oil price shock, just given recent geopolitical tensions. The S&P had rallied 4.4 pct on a price basis to its peak on July 16th, 1990, but declined 10.5 pct from there through year-end.

Bottom line: A March peak for the S&P this year would require a powerful negative catalyst to develop from here. History says this could be an economic surprise (i.e. Fed policy mistake, rate hikes) or geopolitical shock (oil price spikes). Just today, Fed Chair Powell signaled rates would likely remain higher for longer given stubbornly high inflation, lowering expectations for rate cuts this year. We’re also closely monitoring how events in the Middle East unfold given its potential impact on oil prices. Either could hurt the US consumer and therefore corporate profitability, compressing valuations amid rising rates.

 

Time will tell how long global equities will need to wrestle with these two issues, but we remain positive on US large caps.

As always, if you would like to discuss any of the material, or if you would like to review your current portfolio as we head into 2024, please do not hesitate to contact me or any member of my team and we can arrange an in-person meeting, Teams video conference call, or a telephone call to discuss your investments.

 

Best regards,

Gordon Forsey | Portfolio Manager, Senior Wealth Advisor | CIBC Private Wealth
1801-1969 Upper Water St., Halifax NS B3J 3R7 | Tel: 902-420-6203 | Toll Free: 1-800-565-0601

Email: gordon.forsey@cibc.ca

 

Gordon Forsey Advisory Group:

Gordon Forsey P.Eng., MBA, CIM©, FCSI

Portfolio Manager, Sr. Wealth Advisor

gordon.forsey@cibc.ca

Tel: 902-420-6203

 

Andreas Demone BBA

Client Associate

andeas.demone@cibc.com

Tel: 902-420-9624

 

Terri MacPhail

Client Associate

terri.macphail@cibc.ca

Tel: 902-420-8263

 

Michael Forsey BA

Administrative Assistant

Michael.Forsey1@cibc.com

Tel: 902-420-8232

 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

 

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2024.

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.