Does a strong Q1 mean a strong year ahead

By Dale Gillham. Published at Apr 20, 2021, in Investor 101

History dictates that if the stock market is bullish in the first quarter of the year, it is likely it will end the year in positive territory.

Over the last 70 years, statistics on the Dow Jones Index confirms that if the first quarter of the year is bullish, it will almost certainly have a positive gain for the year.

While I don’t have statistics on this for the Australian stock market, it would be reasonable to assume that a similar pattern would apply.

In the first quarter of 2021, the Australian market rose 2.43 per cent, while the Dow Jones Index rose over 7 per cent or around four times more than its historical average.

While this is very bullish, most of the gain occurred in March of this year.

Interestingly, the tables have turned slightly given that the All-Ordinaries Index has so far risen around 60 percent more than the Dow Jones in April. So, what can we make of this?

As we know, markets ebb and flow and despite the Dow Jones performing very well in the first quarter of 2021, this doesn’t mean it will continue to rise at the same speed for the remainder of the year.

The same can be said for the Australian market, as it is quite possible given the modest gains to date that we may well see it pick up speed in the second half of the year.

In reviewing the results of the Australian stock market in the first quarter of 2021, Financials are up 11.32 per cent, Consumer Discretionary is up 7.44 per cent, while Communication Services is up 7.05 per cent. Information Technology, on the other hand, is the worst performing sector, as it is down 11.53 per cent although in the first two weeks of April it has risen nearly 15 percent on the back of strong gains from Afterpay and Xero.

As I have said in many previous reports, I am confident that the Energy, Materials and Financial sectors will do well this year, so it will be interesting to see how the market unfolds from here.


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