According To History, Investors Can Expect Volatility In The Second Quarter

As stock markets continue to trend upward in the first quarter of 2023, both the S&P 500 and the MSCI World Index are forecast to make gains of more than 4% for the year, at least in the short-term.

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In this regard, the S&P 500 index often declines after a year of negative returns, and the MSCI World Index typically does the same, even if it performed marginally better than the S&P 500 Index a year ago.

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Trade Algo looked at data on Stock Markets on FactSet dating all the way back to 1928 to determine the likelihood that the S&P 500 index will rise only about half (55%) of the time after experiencing a down year, based upon their analysis of stock market data on FactSet.

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There has been an average return rate of just over 14% on the S&P 500 when it rises under such conditions historically. However, past performance doesn't necessarily guarantee future performance.

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The stock market generally delivers a positive return for the year as a whole for investors after a negative performance to close out the previous year can be reassuring for investors looking ahead.

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Two prominent examples where the S&P 500 index declined successively over a two year period can be found in late 1973 and early 1974, when the Bretton Woods system collapsed combined with the oil crisis, and again in 2001, 2002 and 2003, when the dotcom bubble burst in 2001, 2002, and 2003.

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The global stock market

Compared to that, the MSCI World Index, which aggregates large and midcap stocks across 23 developed countries, showed a generally better performance this year, with more than 1,500 stocks being included.

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As of the end of the second quarter, the index has risen 67% of the time, bouncing off the positive fortunes of the first quarter following a negative year of returns.

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As compared to the S&P 500, the index offers lower volatility, with stocks rising or falling by only 6% a year, as opposed to the 15% of the S&P 500.