Will the Market End with Positive Gains in 2021?

History dictates that if the stock market is bullish in the first quarter of the year, it is likely it will end the year in positive territory. Over the last 70 years, statistics on the Dow Jones Index confirms that if the first quarter of the year is bullish, it will almost certainly have a positive gain for the year. While I don’t have statistics on this for the Australian stock market, it would be reasonable to assume that a similar pattern would apply.

Australian market likely to perform well in 2021

In the first quarter of 2021, the Australian market rose 2.43 per cent, while the Dow Jones Index rose over 7 per cent or around four times more than its historical average. While this is very bullish, most of the gain occurred in March of this year. Interestingly, the tables have turned slightly given that the All Ordinaries Index has so far risen around 60 percent more than the Dow Jones in April. So, what can we make of this?

As we know, markets ebb and flow and despite the Dow Jones performing very well in the first quarter of 2021, this doesn’t mean it will continue to rise at the same speed for the remainder of the year. The same can be said for the Australian market, as it is quite possible given the modest gains to date that we may well see it pick up speed in the second half of the year.

In reviewing the results of the Australian stock market in the first quarter of 2021, Financials are up 11.32 per cent, Consumer Discretionary is up 7.44 per cent, while Communication Services is up 7.05 per cent. Information Technology, on the other hand, is the worst performing sector, as it is down 11.53 per cent although in the first two weeks of April it has risen nearly 15 percent on the back of strong gains from Afterpay and Xero. As I have said in many previous reports, I am confident that the Energy, Materials and Financial sectors will do well this year, so it will be interesting to see how the market unfolds from here.

What were the best and worst performing sectors last week?

Once again, Information Technology was the strongest performer up 4.35 per cent followed by Healthcare up 1.9 percent and Materials up 1.47 per cent. The worst performing sectors included Utilities down over 2.54 per cent followed by Energy down 1.17 per cent and Industrials up 0.02 per cent.

The best performers in the ASX/S&P top 100 stocks included Altium up 8.40 per cent followed by Xero up 5.93 per cent and Ampol up 5.41 per cent. The worst performing stocks included Origin Energy down 9.70 per cent followed by TPG Telecom down 5.67 per cent and AMP down 5.56 per cent.

What's next for the Australian share market?

This week the All-Ordinaries Index continued to move higher to achieve a new all-time high after breaking the previous high of 7,289.70 points set back in February 2020 just before the COVID meltdown. In fact, over the last 10 trading days, it has risen 5.10 per cent, whereas in the prior 20 trading days it traded sideways with growth of only 0.50 per cent.

While this is good news, what many investors don’t really appreciate, especially those new to the market, is that the fall and subsequent rise that unfolded between February 2020 and now is unprecedented and abnormal, as the market has never behaved like this in the past. Given this, the increased number of investors who have jumped into the market since the March 2020 low are yet to be challenged.

Moving forward, the market is likely to have a pullback for one or two weeks, which should start in the next week or so, although I believe this move will be short lived, as I expect it to be mostly bullish until around mid-May and possibly longer as it rises to around 7,600 points.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.