Friday, May 26, 2023
Yesterday was the 100th trading day of 2023, and a productive 100 days for stocks it was. Through that 100th trading day on May 25, about 40% of the way through the year, the S&P 500 Index has gained a solid 8.1% (excluding dividends). That milestone on the calendar seems like a good time to look at what the strong start to the year might mean for the rest of 2023.
Since 1950, in years when the S&P 500 has been up at least 7% through the first 100 trading days, the average gain over the rest of the year has been a robust 9.4%, with the median slightly better at 10.0% (see table below). That compares to the average gain of 5.4% in all years from trading day #101 through year end. In general, strong starts tend to be followed by solid finishes.
The consistency of these strong finishes is also impressive. After these strong starts, the S&P 500 has added to those gains in 23 of 26 years (88%). As shown in the table below, two of the three years when stocks fell after the strong first 100 days ended only marginally lower—stocks fell just 0.4% the rest of the year in both 1975 and 1983. So, only 1987 saw stocks experience a material decline after a strong start, which encompasses the Black Monday crash in October of that year. While we know there are no guarantees in this business, the consistency of this pattern over seven decades suggests it is likely to hold up again.
LPL Research believes the chances are good that stocks repeat this pattern again and add to year-to-date gains between now and year end, though tacking on another 9.4% may be a bit much to ask with recession potentially looming. Our year-end S&P 500 fair value target is 4,300 to 4,400, based on a price-to-earnings ratio (P/E) near 19 and $230 in estimated earnings per share in 2024, representing about 5% upside to the midpoint of the range.
Averting recession for most of the year as inflation falls would likely be part of a strong second half stock market story. In that scenario, S&P 500 earnings may not have much downside to current consensus estimates of around $220 per share for 2023 (our forecast is $213). A Federal Reserve on the sidelines wouldn’t hurt—nor would getting past the debt limit dilemma.
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All index and market data from Bloomberg.
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