The S&P 500 (SPY) saw a strong 10% gain in Q1 of 2024, with an impressive 25% gain since November 2023. These gains, however, are expected to slow down as the average annual gain for stocks is only 8%. While this doesn’t necessarily signal a bear market, it does indicate a deceleration in the pace of gains going forward.
In terms of market performance, mega-cap tech stocks have been leading the way, with smaller stocks lagging behind. Historically, small stocks have outperformed large caps, making the current trend somewhat of an anomaly. However, small caps leading a bull market is seen as a positive sign of investor risk-taking.
In terms of sector performance, Technology and Communication Services continue to lead the pack, while more defensive groups like Consumer Defensive, Utilities, and Healthcare are in the middle to bottom of the pack. Basic Materials and Industrials, typically strong performers in the early stages of a bull market, have shown weakness.
Looking ahead, it is expected that the pace of gains will slow down, with the S&P 500 potentially reaching 5,500 by the end of the year, representing a modest 5-6% increase from current levels. To outperform in this market, investors may want to consider shifting towards small caps, basic materials, and industrials, as well as seeking undervalued stocks.
Utilizing a proprietary POWR Ratings model, investors can identify stocks that meet these criteria for potential outperformance. The model has shown consistent outperformance over the past 25 years, making it a valuable tool for investors looking to improve their odds in the market.
Overall, while the market may see slower gains in the coming months, there are still opportunities for investors to achieve superior returns by focusing on the right sectors and stocks. With a strategic approach and careful selection, investors can navigate the market effectively and potentially outperform the indices.