Indicator of the Week: Strong Start for Stocks Bodes Well for 2017

The S&P 500 Index (SPX) has gone 95 days without a loss of 1% or more

Senior Quantitative Analyst
Mar 1, 2017 at 8:13 AM
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Stocks just keep chugging higher. The first two months of 2017 are in the books, and both months saw the S&P 500 Index (SPX) move upward. A couple of other stats show how well stocks have been doing, too. For one, the S&P 500 has been trading within 2% of its all-time high now for over three months straight. Additionally, the index has not fallen by over 1% in more than four months. This week, I’ll look at how the stock market has behaved in the past in these situations.

S&P 500 Index (SPX) Has Positive Momentum Going Into March

The S&P 500 gained in both January and February of this year. This hot start for the market is a good sign going forward. The table below shows that when the first two months of the year are positive, the SPX has gained an average of 12% for the rest of the year, and was positive 92% of the time. This easily tops the other years, where the index averages a gain of just under 5%, and is positive 61% of the time.  

What about March? Do the positive first two months create momentum for March, or do stocks tend to give some back? Again, strength seems to beget strength. March has been positive 73% of the time when the first two months were positive, but 61% otherwise. Additionally, the S&P gains, on average, 1.46% versus 1.11% otherwise.  

So, when the first two months of the year have been positive for stocks, it has been a good sign going forward.

sp500 returns after positive jan_feb

History Points to a Steady, Uptrending Stock Market

The last time the S&P 500 had a 1% drop in one day was Oct. 11, or 95 trading days ago. Since 1950, this is the 13th streak of this length. The table below summarizes how the index has performed after these streaks, compared to anytime returns since 1954 (the year of the first occurrence).  

The index has tended to outperform after such streaks, at least in the shorter term. The S&P 500 averages a gain of 1.7% over the next month, and is positive 75% of the time after these streaks. This is good compared to the typical 0.7% gain and positive 61% of the time. The standard deviation of returns is also very low, so we might expect a steady, uptrending stock market over the next month. When you move farther out after these signals, however, the returns are closer to typical index returns.

sp500 returns after streak of days without one percent loss

The fact we've gone this long without a 1% drop does not necessarily mean one is right around the corner. Streaks of 95 or more average a length of 123 days. Therefore, one could argue there is no reason to expect a 1% down day over the next month of trading. Thus, this article seems to make a couple arguments for a bullish March.

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