Market History
This will be one of the busiest weeks for the first quarter earnings season, and we want to address the concerns around expectations for earnings growth to be negative for the second quarter in a row. We follow corporate earnings very closely as earnings are an important long-term driver of stock prices. However, the S&P 500 has held up in the short term after two consecutive quarters of negative profit declines. Going back to 1948, the S&P 500 average price performance following a second straight quarter of year-over-year earnings decline, the market is up three, six, and twelve months after. Six months after two consecutive quarters of profit declines, history shows the market was up on average by 5.9%. It was up 7.4% in periods when you take out economic recessions. History says that as long as investors have balanced and diversified allocations, they shouldn’t get caught up in the doom and gloom around earnings season. Another interesting historical fact about the market is that when the S&P 500 gained more than 7% in the first quarter of a year like it did this year, the S&P 500 has never had a negative full-year return. In fact, it had an average gain of 23%. As always, there are no guarantees, but this historical data on the market says that investors should remain calm regarding mixed earnings results and other concerning headlines.
Spending Cuts
Politics always cause some emotion in the markets, and this week will be no different as it’s a big week for earnings and the House of Republicans. The House Republicans unveiled their plan to try and pass a bill to vote on for $4 trillion worth of spending cuts while raising the debt ceiling. If this bill passes the House, it is unlikely to be fully enacted. There will likely be some changes; however, this is an essential first step in these discussions. If they cannot pass it, the leverage will shift to the Senate, where they’ll have their chance to look it over and make changes. With tax revenue numbers being a little lower this year, the debt ceiling day might move up into June, and because of that, it’s important to get this first step through. The House is pushing for it to go through this week, as they see this June day becoming a possibility. There is no concern for default now, but this would be an essential first step to make that scenario even less likely. These situations are always emotional for the markets; however, we will continue to look at the facts and update you as we navigate them.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here
Ty Miller
Associate Vice President
Wealth Consultant
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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