The SPX Just Did This for the Fourth Time Since 1929

Since 1930, years ending in the number one have averaged a loss of 1.3%

Senior Quantitative Analyst
Jan 6, 2021 at 7:00 AM
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    Though 2020 was one of the roughest years in many ways, for investors it was profitable. For one, the S&P 500 Index (SPX) gained double digits for the second year in a row (it registered a 16% increase in 2020, and 29% the year before). These gains, however, did not come easy, as the index was down over 30% at one point in March, in response to the COVID-19 pandemic. This week is a mishmash of numbers from the past year, and below, I am diving into what they might mean for stocks in 2021.

    Daily Returns Per Year Since 2000

    Below is a table that summarizes the daily returns per year, since 2000. It’s clear that 2020 was an odd year. The volatility is apparent in the average positive and average negative return data. Both of those figures are above 1% for the first time since 2009, the year of the financial crisis. The positive/negative ratio is 0.84, which is the third lowest reading in the table. That means the average down day was much worse than the average up day. The reason for the 16% return on the year was the number of up days easily outnumbered the number of down days.


    Speaking of big up days, an astonishing figure from 2020 was the number of days in which the market gained at least 1%. Specifically, there were 64 days last year in which the S&P 500 was up by more than 1%. This ranks fourth for the index, going all the way back to 1929. The table below shows the top 10 years for that stat, including the financial crisis years of 2008 and 2009, the Great Depression years, and then 2020.


    Understanding Consecutive Double-Digit Gains

    I mentioned above how the S&P 500 was up 16% and 29% over the past two years. I figured it would be interesting to see how the next year tended to pan out. The table below shows there were 14 times since 1930 in which the S&P 500 gained at least 10% two years in a row. Unfortunately, the next year tends to struggle. After two double-digit years for the S&P 500, the next year averages a return that’s barely above breakeven. Other years, the index gains an average of 9.5%.

    In addition, after two 10% years, 57% of the returns the following year were positive, compared to 70% for other years. The main reason for the underperformance, though, is the lack of upside after two big years. The average positive return after two double-digit years was about 11%. Other years, it’s 19%. The average negative year, however, is around -13% to -14%, no matter what. I added a couple more stats at the bottom of the table that shows where the index, on average, has maxed out and bottomed out over the next year. Again, it shows less upside after two big years, with no effect on the downside.


    Could There Be a Pattern?

    Here’s another bad omen based on some numbers. I don’t have a theory on why this would be, but years ending in "1" (like 2021), are the worst when it comes to losses. Since 1930, years that end in that number have averaged a loss of 1.3%, with just 44% of the returns positive. It’s the only ending number has led to a loss on average. It also has the highest standard deviation of returns, which is fitting because there seems to be a big range of outcomes that could occur for stocks in 2021. The last table below shows the individual years that end that way. The last time, which was 2011, the S&P 500 was almost perfectly flat. So, who knows?



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