It's a bad sign when the market breaks the prior December lows in Q1
The first quarter of 2025 is in the books, and it was a rough one for the stock market. The S&P 500 Index (SPX) fell about 4.6%. Not counting the coronavirus crash in 2020 -- when the SPX plunged over 12% in March -- this past March was the worst since 2001. In this article, we will look at historical data to see how markets have reacted to similar scenarios from we’ve seen so far this year.
A Break of December Lows
I view it a bad sign when the stock market breaks the prior December's lows in the first quarter of a year. This happened for the SPX in 2025, and looking back I found that it has indeed been a bad omen for the rest of the year.
Since 1950, when the SPX closed at least one day below the prior December’s lows in the first quarter of a year, the index averaged a 2.85% return over the last three quarters. with just barely half of those returns positive (53%). In the other years, it gained about 10.5% on average for the rest of the year, with 90% of the returns positive. The table below shows this situation has typically led to poor returns with increased volatility.
April has also underperformed in years when the December lows were broken in the first quarter, but fortunately, to a lesser extent. Over the 34 years since 1950 when December lows did not hold in the first quarter, the SPX saw a 1% gain on average for April, with 65% of the returns positive.
Those numbers aren’t too bad, but April has historically been a very strong month. Years in which the December lows were not breached, the SPX averaged a return of 1.8% with 76% of the returns positive.
April Seasonality
I mentioned April has been a strong month for stocks. The table below compares SPX returns for each month going back to 1950. For April, the index has averaged a 1.46% return, with 71% of the returns positive. The average returns ranks second, behind November, and the percentage of positive returns also ranks second to December.
With the SPX down over 5% last month, I looked at how April reacted after March was down big. The table below shows all the times the index fell at least 2% in March, again going back to 1950. Based on this data, there seems to be a good chance for a strong April. In the five years in which the SPX was down 4% or more in March, April was positive each times, averaging a return of 6.3%.
