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First quarter stock returns of this year were the highest first quarter returns since 1998. Is it time to break out the champagne? This red line shows the first quarter returns-- as I mentioned-- of the S&P 500 going all the way back to 1996. And just so we're clear, that means you bought the S&P 500 at the beginning of January, and you sold it at the end of March, you would have had 13% returns in just 2019.
Now, the blue line is annual returns-- in other words, if you bought at the beginning of January and you sold at the end of December. And it's important to remember that this blue line-- the annual returns-- they're over a longer period of time, obviously, than the first quarter. And also, that the first quarter is embedded in those annual numbers. So we're not comparing apples to apples exactly, here, but we are giving some context.
Now, you'll see a pattern, here. You'll see that when annual returns are positive, or above 0, the first quarter returns are not quite as high as the annual. And when they were below 0, the first quarter didn't suffer as severe losses.
Now, what makes this first quarter's return so remarkable is that if you go back to when we had similar first quarter returns in 1998, you'd see that annually, the stock market returned 27%. And if you thought that this year the stock market was going to return 27%, you should shovel your money into the S&P 500. But for a few reasons, you may not want to do that.
Now, the S&P 500 is based on the performance of the 500 underlying companies within it. And while the economy is not exactly the same thing as the stock market, when the economy's good, people have more money to spend on goods and services that may be offered by those 500 companies, which would boost their performance. This year, the Federal Reserve has said, we don't think the economy is going to grow as much as it did last year, which means that actually, the performance of those companies may not be as good as this first quarter indicates. So as far as breaking out the champagne, I wouldn't do it quite yet.
