According to LPL, the S&P 500 Index was up more than 20% by the end of August for the first time since 1997 and it has made a new high every single month this year so far (9 for 9). Incredibly, it made 53 new highs before August was over, the most ever. Any way you slice it, this year is historic for the bulls. The catch (and there’s always a catch) is the S&P 500 hasn’t pulled back 5% all year, with the last 5% pullback in October 2020. Not to mention September is the worst month for stocks since 1950.
But history says that great starts to a year tend to see continued strength in the final four months. “Looking at the previous Top 10 starts to a year ever, the final four months have gained eight times,” explained LPL Financial Chief Market Strategist Ryan Detrick. “So should we see any seasonal weakness, we’d use it as an opportunity to buy before likely continued strength.”
As shown below in the LPL Chart of the Day, 2021 ranks as the 6th best start to a year ever. The previous Top 10 best starts to a year averaged a return of 4.0% the rest of the year, with a very solid median return of 5.4%.
We continue to be cautiously bullish as long as interest rates stay low. We are also looking for pockets of opportunity, whether through European Stocks, high yield private debt, or small allocations to emerging markets. We are also looking to protect our gains, whether through hedging strategies or long/short funds. What could get in the way? Wage/input cost inflation and supply chain shifts are starting to weigh on margins. Interest rate risk is at a record high and valuations leave no margin for error. Well, there you have it.
Please reach out if you have any questions.