What This Rare Milestone Could Mean For Stocks

The Dow, SPX, and COMP all finished at highs yesterday -- something that hasn't happened since the late 1990s

Aug 12, 2016 at 2:57 PM
facebook X logo linkedin

The three major stock market indexes hit record closing highs yesterday. As you might have guessed, this represents a rare milestone. Historically, the Dow, S&P 500 Index (SPX), and Nasdaq Composite (COMP) haven't simultaneously settled at all-time highs since the late 1990s.

How have stocks typically reacted after such rare occurrences? To determine the answer, we enlisted the help of Schaeffer's Senior Quantitative Analyst Rocky White, who put together the series of charts below. For clarity's sake, these charts look back to 1980, and only include signals that follow a prior signal by at least six months. Let's start with the Dow's performance after the three major indexes close at a high, comparing it to its anytime performance.

dow after highs summary august 12

As you can see above, blue-chip stocks have tended to underperform in the short term following the past nine signals. The Dow has tended to pull back sharply post-signal -- down 1.3% in the ensuing two weeks (vs. an anytime gain of 0.4%), with just 22.2% positive (vs. 58.6%). However, from three months onward, the Dow's post-signal returns begin to outperform significantly. Interestingly, volatility -- as measured by standard deviation -- is lower across the board, likely due to diminished fear levels when stocks have been outperforming.

Dow returns were very impressive the last two times all three indexes ended at record highs (in 1995 and 1998). Based on the chart below, the blue-chip benchmark didn't miss a beat as it usually does, but outperformed across the board.

dow after highs by year august 12

It's a very similar story on the SPX -- especially with respect to lower volatility -- as you can see in the chart below. Two weeks after the signal, the broad-market index has averaged a 1.3% drop (vs. an anytime gain of 0.4%). But while the tide shows some signs of turning by three months, the outperformance doesn't carry through the way it has with blue-chip stocks. One year out, the post-signal and anytime returns are similar (8.2% vs. 9.7%), while the percent positive is nearly identical (77.8% vs. 76.6%).

spx after highs summary august 12

Again, here's the year-by-year breakdown of SPX performance after the indexes all close at highs. As with the Dow, the last two occurrences have been very good to stocks on the SPX.

spx after highs by year august 12

Rounding things out, here's a summary of COMP returns after the signal. It looks like tech stocks are a more mixed bag. While they've tended to outperform sooner (i.e., by one month), there's no discernible or consistent pattern. Put simply, the post-signal returns seemingly alternate between overperformance and underperformance, on both an average-return and percent-positive basis.

comp after highs summary august 12

comp after highs by year august 12

If you're looking for takeaways, the first is that the Dow, S&P, and Nasdaq all experience some short-term speed bumps after hitting highs. Second (and related to the prior observation), the longer-term performance of stocks is generally quite strong after these signals, based on both average returns and percent positive. Lastly, volatility tends to be lower than usual in these environments, as stock gains alleviate fear. 

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI