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Will Q1′s Fast Start Lead to a Slow Finish? Nope, Says Stovall


After powering to a record high to close out the first quarter on a positive note, things aren't going nearly as swimmingly now that we've turned the calendar pages to April. As much as the long-term track record for this month is positive and the second quarter results are good, many are still fearful that a correction could be in the cards going forward.

While not ruling out the chance of a correction, Sam Stovall, chief equity strategist at S&P Capital IQ, says the fast start year and biggest Q1 gain in 14 years does not necessarily mean the party is about to end.

"A strong first quarter has served as a running start for the rest of the year," Stovall says in the attached video. In fact, when the first quarter delivers positive returns, the odds of the next three quarters also delivering gains not only goes up, but so does the average total return. Here's how he summed it up in a note to clients today:

Since 1945, whenever the S&P 500 recorded a positive performance in the first quarter, the average performance for the three remaining quarters improved by an average 1.2, 1.1, and 0.4 percentage points, respectively. In addition, the entire rest of the year saw its average return of 6.1% rise to 8.9%, or be improved upon by 2.8 percentage points. Finally, the frequency with which the S&P 500 rose during the remainder of the year increased to 85% following a positive Q1 versus 74% for all years.

At the same time, Stovall notes that fears that 2013 might go on to a horrific finish like 1987. While he concedes that another crash is a possibility, but thinks that our first quarter rise would have had to been more like the 20% gain of 1987 to leave us in such a vulnerable position.

As for April alone, Stovall calls this cruelest of months a bit tricky, in as much as recent Aprils have marked short-term tops but longer term data show the fourth month of the year to be among the best.

"What I have found is that April is a good month," he says, warning investors to heed the "sell in May and go away" period.