S&P on pace to score fourth month of consecutive gains. History tells us what could come next

Published Thu, Feb 29 20246:46 AM EST

After four consecutive monthly gains, it's worth asking what it means for the rest of the year. The S & P 500 is ending February with a gain of almost 5%. The broad index has now seen four consecutive monthly gains, for a total increase of about 20% since the start of November 2023. Those gains have corresponded with a decline in Treasury yields, which began about the same time. S & P 500: Four big months November: up 8.9% December: up 4.4% January: up 1.6% February: up 4.6% The November gain of 8.9% was one of the 20 best monthly performances in history. So what's it all mean? A strong close to one year followed by a strong start to the new year is a very powerful leading indicator. Since 1930, the S & P has seen 16 cases in which the four-month period from November through February were all positive, and the full year has been positive in all 16 cases, with an average gain of 18% for the year, according to Steve Starker at BTIG. There are even more signs of powerful momentum. The S & P has advanced about 5% since passing the old January 2022 historic high, which it crossed on Jan. 19, this year. Put another way: the S & P has recovered all the bear market losses from the old high in January 2022 to the bear market bottom in October 2022, and added another 5%. That's not unusual in powerful rallies, said Todd Sohn of Strategas. "More often than not, momentum begets momentum," he said. A broad advance, but a handful of names drive the gains While everyone is complaining the market is just up because of Nvidia, it just isn't true. There have been notable advances in several sectors outside of technology in the past four months, with several names up more than 20%. S & P Sectors (since 10/31/23) Technology up 27% Communication Services up 24% Financials up 24% Industrials up 22% Consumer Discretionary up 22% Health Care up 17% Not surprisingly, each of these groups have a few stocks that are driving a large part of the action. Technology leadership (since 10/31/23) Nvidia up 91% Broadcom up 53% AMD up 79% Communication Services leadership (since 10/31/23) Meta up 60% Health Care leadership (since 10/31/23) Eli Lilly up 37% Merck up 24% Consumer Discretionary leadership (since 10/31/23) Amazon up 30% Home Depot up 32% Costco up 35% Financials leadership (since 10/31/23) JPMorgan up 31% Mastercard up 27% Berkshire Hathaway up 21% Visa up 21% For Nicholas Colas, who analyzes stock trends at DataTrek Research, this is not surprising. "A handful of names tend to drive overall market performance, and it's no different when it comes to sectors," he wrote in a recent note to clients. "We don't consider this unusual or worrisome. Bull markets always have leadership names." So what could go wrong? Some correction is likely, if historic patterns prevail The biggest obstacle to further advances: the failure of the Fed to follow through with rate cuts, and the historic trend of at least a 5%-10% correction that typically occurs after the S & P takes out the prior bear market losses. "History reminds us that the S & P 500 typically advanced another 5% after recovering all of the prior bear market's loss (which occurred on January 19) before slipping into a decline averaging 8%," Sam Stovall, chief investment strategist at CFRA, wrote in a recent note to clients. "Yet it also offers encouragement that no post-recovery selloff saw the start of a new bear market before rebounding and proceeding onto additional new highs."