Analyzing the S&P's Unusually Positive Start to 2017

The SPX has stayed positive throughout 2017, which could be a bullish signal for stocks during the second half

Senior Quantitative Analyst
Jun 7, 2017 at 6:30 AM
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Watching this market daily can be mind-numbing, as the S&P 500 Index (SPX) trudges higher little by little. I’m not complaining, though, if it’s profitable. In fact, at no point in 2017 has the index traded below its 2016 close. In the analysis below, I’ll take a deeper look into that stat, and then I’ll find years similar to 2017 to see how the SPX performed going forward.

What The 2017 Stock Market Has In Common With 1987

At its lowest point on the first trading day of 2017, the S&P 500 was 0.28% above its 2016 close. It hasn’t traded lower since, which means investors have remained in the black all year through the first week of June. Only 10 other years, which are listed in the table below, can make that boast.

During the current bull market, this has occurred twice. The market gained double-digit percentages in 2012 and 2013 through the rest of the year. After that, however, the most recent year was 1987, which is remembered for just one day -- Black Monday, on which the SPX fell 20%.

SPX past years

Using Year-to-Date Lows to Gauge Rest-of-Year Returns

Going back to 1929, I found the rest-of-year returns for the index depending on the low point through the first week of June. When the biggest year-to-date loss was less than 1%, like this year, the index usually did well going forward. Specifically, the S&P averaged a 7.41% gain until year end, with 80% of the returns being positive.

Stocks have done the worst when the loss is neither extremely low nor extremely high (between 1% and 10%). That middle column shows a rest-of-year average gain that is barely above breakeven, with 59% of the returns positive.

The returns through the rest of the year when the index reached a loss of 10% or more haven’t been too bad, averaging a gain of 5.83%. However, those returns have been extremely volatile, as reflected by the standard deviation numbers -- probably more so than most investors would like to stomach.

S&P 500 since 1929

Similar Years to 2017 Show Bullish Tendencies

The chart below shows the year-to-date return so far for 2017, along with the five yearly returns that were most similar through the first week of June. The year that most resembles this year is 1964. You can see in the table below the chart -- which includes the 10 years that most resemble this one -- that the SPX went on to gain a respectable 7.25% for the rest of that year.

2017 year-to-date return

Similar SPX years to 2017

What Does This Mean for 2017 Stock Returns?

In this final table, I summarize the returns in the table above and compare them to other years. When the S&P 500 has behaved like it's doing in 2017, the index's returns have been bullish for the rest of the year, averaging a gain of 6.17% and positive 80% of the time. Compare that to other years, which averaged a gain of 3.66% and were positive 65% of the time. That said, the returns over the next three months in these years have been typical.

So, will the rest of the year live up to the bullish precedent of these similar years? They say the past cannot always be used to predict the future, but it’s still nice to have history on your side.

S&P since 1929


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