Why the Dow Win Streak May Have Legs

The Dow is in the midst of a winning streak, and this could have bullish implications for blue-chip stocks

Jun 1, 2016 at 2:28 PM
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The Dow just wrapped up its fourth consecutive monthly win. During that time frame, the blue-chip index advanced a hair over 8%, as shown in the chart below -- courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. This is the eighth four-month win streak since the 2009 recession.

dow win streak summary

The next chart shows individual four-month win streaks, looking all the way back to 1983. As you can see, several of these streaks didn't stop until well beyond four months, with the longest hitting eight months -- specifically, the one that ended in March 1995. In fact, White looked even further back in time, and found a pair of 12-month Dow winning streaks (1935 and 1958).

dow win streaks

That's all well and good, but what do Dow win streaks mean for the future? Below, White compares the index's performance after four straight up months versus its anytime returns, looking back to 1900. As you can see, it tends to be a bullish indicator going forward, especially when you go out six months and beyond.

The average six-month return after a fourth-month Dow winning streak is 5.54%, with nearly 78% positive. By comparison, the index's average six-month anytime return is 3.42%, with 62.8% positive. Going out to 12 months, the average post-win streak return jumps to roughly 9.6% and 75.9% positive, versus 7.16% and 65.1%, respectively. What's more, volatility was down across the board, as measured by standard deviation.

dow win streaks after 1900

The trend more or less held true, even when White looked at more recent data -- the years since 1983. A year out, in fact, the Dow has gained, on average, 13.43% after a four-month win streak, with 90% positive -- besting the still-impressive anytime return of 9.74%, with 77.1% positive. Suffice it to say, bulls can only hope that history repeats itself.

dow win streaks after 1983


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