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Why the stock market’s amazing start to 2019 could be just the beginning

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Complacency in the stock market be damned. If the past is precedent, then stocks have another eight months of gains ahead.

So back up the truck on those red-hot FAANG (Facebook, Amazon, Apple, Netflix, Alphabet) stocks because this party may be just getting started. And while you are at it, nibble at some Lyft before it reclaims its first trading price from its IPO debut ($87.22). But quickly book profits there — the Uber IPO lurks and everyone is looking to get in.

A 10%-plus Q1 spike is a good sign

Historically, when the S&P 500 notches a 10%-plus first quarter increase (13% this year) it leads to a continuation of gains the rest of the year says SunTrust Chief Markets Strategist Keith Lerner.

Lerner’s research finds that in the 10 instances since 1961 where 10%-plus first quarter increases have been notched on the S&P 500, the rest of the year was up nine times. Impressive. The largest gain in the final nine months of a year came in 2013 (+17.3%; thank you former Federal Reserve Chair “Helicopter” Ben Bernanke), while the 1987 stock market crash led to a 15.3% plunge.

“This should not be looked at in a vacuum. Still, the broader point is that strong market returns to start the year tend to be a positive factor,” Lerner notes.

The stage is set for further gains this year, too, Lerner thinks. A combination of a lack of euphoria among investors, low interest rates (thank you current Fed Chair Jerome Powell) and S&P 500 stock valuations below their early 2018 peaks could be positive stock drivers.

There are reasons to beware

All of this is said with tongue in cheek. The fact is the stock market has come a long way from the December lows in a short period of time. Despite Wall Street’s contention to the contrary, valuations across many areas of the market are elevated when compared to the projected nosedive in first quarter earnings growth (and flat growth until the fourth quarter). In other words, returns for the market for the balance of 2019 may not be so juiced up.

Choose wisely right now — a complacent market is great to make money in, until it isn’t.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi


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