S&P Approaching Most Bullish 6 Months of the Year

The November-April period is typically strong for stocks - but things could change this year

Senior Quantitative Analyst
Oct 30, 2019 at 6:30 AM
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Coming off fresh all-time highs, the S&P 500 Index (SPX) is now moving into the most bullish six months of the year, looking at the last 50 years. The table below shows the index averages a 6.62% return from November through April, with 76% of the returns positive. Both of those metrics top all other six-month periods. This week, I'll break down these historical returns to see if the results are still bullish when we parse out the returns that fit the current trading environment.

IotW 1 - SPX 6mo returns

Six-Month Returns When II Bulls Are Prevalent

With stocks hitting all-time highs, it's no surprise that investors are bullish. One gauge of investor sentiment we use is a survey put out by Investors Intelligence (II). The survey considers over 100 published newsletters and determines the percentage that are bullish, bearish, or expecting a correction (short-term bearish but longer-term bullish). The latest report showed most of the newsletters, 53%, were bullish on stocks. The table below shows how the S&P 500 has performed over the past 50 years based on the percentage of bulls in the II poll.

Even when expectations are this high, the S&P 500 has gained an average of 3.65% over the next six months, with 80% of the returns positive. Based on this, investors should still expect gains, but maybe lower expectations about the potential upside for those gains.

IotW 2 - gains based on II bulls

November-April Returns When SPX Near All-Time Highs

Next, I looked at how stocks have performed from November through April when the S&P 500 enters the six-month period near all-time highs. In that case, the next six months yield a return of 5.47%, on average, with 71% of the returns positive. This is just slightly worse than the other cases, when the index isn't so close to its highs. Again, it's still a positive return for stocks in these situations, but expectations might be lowered a bit.

IotW 3 - SPX based on ATHs

S&P Returns with Bullish Sentiment and at All-Time Highs

Naturally, I filtered out the times where the index was near an all-time high and the percentage of bulls in the II poll was above 50%. There are only five data points, but the returns do not look good. The S&P 500 averages a small loss in those situations, with three of the five returns positive. So, in these specific situations, the next six months haven't been as bullish as we usually see.

IotW 4 - SPX with II bulls and ATHs  

Finally, I have the individual years for these incidents. The good news is that we've seen this signal three times already during the current bull market in stocks. The ensuing six months were positive every time. Before that, the last time was in 2007, which was close to the market top before the financial crisis.

    IotW 5 - SPX signals with II and ATHs          


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