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Notes From Q1



Q1 is in the books. As a student of the market, I'm always looking for changes in behavior across asset markets. Below are some highlights, lowlights, and historical analogs based on first quarter results.

S&P 500

  • S&P500 finished the quarter -2.59% which marks the worst quarterly return since Q1 2003.
  • The quarterly range of 65.42 points is the smallest (in points) since Q2 1996.
  • The S&P500 managed to post a daily gain of more than 1% just two times for the entire quarter.

Correction Points?

  • In just 15 days, the S&P500 declined 5% from the quarter's high (March 7) to the quarter's low (March 29).
  • The last time the S&P500 made a new 60 day high followed by a 60 day low in the same calendar month was (ironically) March 2004.
  • Those looking for a 10% correction in the Nasdaq Composite got their wish on March 29 as well. On its low, the Composite was -10.2% from the Jan 3 high and -9.5% from the 2004 close.

Relationships Between Equity / Fixed Income and Dollar / Euro Showed a Change in Character From Prior Quarters

  • Fixed income and equity markets moved materially lower in the same quarter for the first time since Q2 2000. I say materially because both closed lower in Q1 2002 but the SP was down less than .5% for the quarter. For this, I compared Bond and SP futures (not cash).
  • The dollar gained more than 4% against the Euro for the first quarter since Q1 2001 (for this I looked at futures on the Euro).

Nasdaq Composite

  • The Nasdaq Composite finished the quarter down 8.10% which marks the worst quarter since Q3 2002
  • The quarter was highlighted by strong opens and weak closes. The Nasdaq-100 futures posted a combined gain of 6% for the overnight session and lost a combined -14% from the open to close.
  • The Nasdaq closed lower on day one of 2005 and has yet to post a positive close on the year. Looking at the Nasdaq Composite since 1980, there were just 8 quarters in which the highest close of the quarter was less than the prior quarter's close (and the index has never gone an entire year without a positive close). The tabe below lists the quarter of occurrence, then the return for the next month and quarter:

More than anything I think this table highlights the probability of either a positive close for April or a choppy trade at worst. Following a "straight down" quarter such as Q1, the next month was negative just one time (as the table illustrates). But even then (July 2000), the Nasdaq posted a high for the month of more than +8%. So I suspect that bulls will buy into any early month drawdown.

Any bias for Q2 or the month of April?

  • In the 77 years of data for the SPX, the index finished higher 61% of the time in April and 53% of the time in the second quarter.
  • So those numbers don't tell us too much. But if we look at the action in the S&P 500 over the past 30 years and isolate years with similar first of year weakness, the bulls get the benefit of the doubt. In the table below, I've highlighted the years in which the S&P finished lower in March. Again, I only looked back 30 years for this study but April was positive in 8 of 10.

  • For the same years, I looked for a negative Q1 and listed the return for April and Q2 in the table below. Many of the years overlap but the forward results are equally positive for the month of April.

At one point in the quarter, Exxon Mobil (XOM:NYSE) was the largest company in the world as measured by market cap. The stock gained more than 16% this quarter which marks the best quarter since Q4 1996 and the company's 10th consecutive quarterly gain.

Past performance does not indicate future results.

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