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A good first quarter for stocks almost always leads to a solid year

Key Points
  • Every time the S&P 500 scored a gain of 10% or more in the first quarter of a year since 1935, the market managed to climb up 6% more on average for the rest of the year with positive performance during 11 of the 12 times, according to BMO.
  • The S&P 500 is up 13% in the first quarter of 2019.
  • The rally has showed "healthy market breadth," and fears of a global slowdown might be overblown, says BMO chief investment strategist Brian Belski.
  • "We would recommend that investors continue to add exposure to U.S. stocks, especially during any periods of potential weakness – something that is highly likely given the current environment," Belski said.
The Charging Bull near Wall Street is pictured in New York, January 16, 2019
Carlo Allegri | Reuters

History seems to be on the bull's side.

The first quarter's record rally that gave stocks their best start to a year since 1998 could turn out also to be a good omen. According to BMO, every time the S&P 500 scored a gain of 10% or more in the first quarter of a year since 1935, the market managed to climb up 6% more on average for the rest of the year with positive performance during 11 of the 12 times.

Now, with a 13% surge locked in in the first three months of 2019, the future looks not bad if the past is any guide.

There's of course more reasons to buy, according to BMO chief investment strategist Brian Belski. For one, the epic rally has actually showed "healthy market breadth," meaning the participation has been broad-based, as opposed to be driven only by mega-cap tech names.

What's more, the fears of a global slowdown might have been overblown as multinationals have proved to be outperformers this year, the strategist said.

"Slowing global growth has been one of the biggest concerns over the past several months ... Interestingly, however, the 25 S&P 500 companies with the largest percentage of foreign sales have seen a sharp bounce in relative performance this year," Belski said. "Slowing global growth is certainly a concern, but the effect on these companies may not be as terrible as headlines suggest."

Lastly, for investors still pondering what the Federal Reserve's policy U-turn means for the stock market, Belski said a pause on interest rate hikes has been historically good for the market. The Fed at its last policy meeting indicated no hikes are coming this year.

BMO looked at the S&P 500's past performance since 1990 when the central bank changed course with its monetary policy, and found that the market gained nearly 10% on average from the date of the final rate hike to the date of a rate cut.

"We would recommend that investors continue to add exposure to U.S. stocks, especially during any periods of potential weakness — something that is highly likely given the current environment," Belski said.