The first quarter (Q1) of 2020 delivered quite a ride. First, the S&P 500 dropped 13%, then it soared 11%. The Dow Jones Industrial Average fell 11.3% and rallied 8.15%. The NASDAQ dropped 20.9% and then popped 16.8%.
It’s rare for the S&P 500 to drop and pop more than 10% in the year's first quarter. In fact, since 1970, it has happened only three other times: 2009, 2016, and 2016. If we loosen the parameter to a drop of more than 8% followed by a >10% rally, we get two additional instances: 2000, 2003.
Why are we looking at other times when the S&P dropped and popped like this year? To see if there is a common post-pattern behavior. The chart below plots the S&P 500 of 2022 against the full-year performances of the earlier identified precedents: 2000, 2003, 2009, 2016, and 2020.
Even a glance assessment reveals that the performance for the remainder of the year was everything but terrible. The following chart makes the assessment of future returns even easier. Shown is the forward performance after each prior instance from Apr. 1 for the next year.
The S&P did incredibly well 3 of 5 times (2003, 2009, 2020), ok 1 of 5 times (2016), and dismal in 2000. The average one-year return was 25.74%, with a win rate of 80% (see performance tracker at the bottom of the chart for average return and win rate for other time frames).
The typical response is usually “things are different this time.” And perhaps they are. But things were also different in 2020 and turned out all right. Based on the weight of evidence, an outcome like 2016 seems more likely than an uber-bullish or uber-bearish scenario.
At the very least, this study suggests that being a perma-bear or premature bear may be popular but not necessarily rewarding. In terms of chart support, a break below 4,416.78 (Mar. 3 high) for the S&P 500 would be the first indication that this time actually might be different.