What 2019's Strength Could Mean for Stocks in the Year Ahead

2019 was a lot like 1989 for the stock market

Senior Quantitative Analyst
Jan 8, 2020 at 8:29 AM
facebook twitter linkedin

2019 was a historic year in which the S&P 500 Index (SPX) gained nearly 30% with exceptional daily consistency (more on that below). The year’s 28.9% return ranks second out of the last 20 years with 2013 (up 29.6%) being the only year that was more bullish. This week I’ll look at some of these 2019 stats and see if stocks tend to revert to the mean following these big years, or if the momentum typically continues.

Momentum Tends to Continue

Here’s a simple study which shows it’s not too much to ask for a bullish 2020, after such a huge 2019. Going back to 1950, I looked at how the S&P 500 performed depending on its return the year before. When the index gained over 20% in a year, the next year has averaged a double-digit return with 83% of the returns positive. This is a bullish result, which I bolded in the table below. It’s interesting that stocks have tended to do better after these huge years than after years in which the index gained moderately. The worst performing bracket in the table, as measured by average return and percent positive, is when the S&P 500 has gained less than 10% the prior year.

Stocks have done best when the prior year sees a modest decline. In the nine instances that the S&P 500 was down but down less than 10%, the next year averaged a 23% gain with all nine returns positive.

SP returns iotw 1

I mentioned earlier about the daily consistency for the S&P 500 in 2019. I’m talking about the fact that there were 150 positive days in 2019. This is a rare occurrence. In the 90 years from 1929 through 2019 it’s just the sixth time there were 150 or more positive days in a year. The table below shows the number of up and down days along with the average daily gain and loss for the S&P 500 each year since 2000. The average loss was a bit more than the average gain, but since there were so many up days, it led to the nearly 30% gain.

SP since 2000 iotw 2

Here are the years in which the S&P 500 notched at least 150 positive days. In the five previous instances, the next year was up four times with two of those years gaining over 20%.

SP 150 positive days iotw 3

Similar Years to 2019

I have a "least squares" method I use to compare yearly chart paths. Using this method, the most analogous year was 2013. They are very similar as you can see in the chart below. In this chart, I show the 2019 year-to-date return along with the five years whose chart path were most similar.

SP similar years iotw 4

Finally, here’s a table listing the ten years that had the most similar chart path to 2019 along with the next year’s return. Six of the seven most similar years were positive the next year.



Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!