How the S&P 500 performs after such a long time near all-time highs
It’s been a while since the stock market experienced a significant pullback. For more than four months, the S&P 500 Index (SPX) has been within 3% of its all-time high. This seemed like an amazing run for the stock market. So, I decided to look at the historical record to see how many times we’ve seen this before, and how it all played out going forward.
90 Days Near an All-Time High
The last time the SPX closed more than 3% away from an all-time closing high was back in early June, or more than 90 trading days ago. Since 1950, there have been eight prior streaks like that. The table below summarizes the index returns after these streaks hit 90 days. The second table is for comparison, showing typical returns since 1964 -- the year of the first signal.
Based on the data below, it could be a slog going forward. The SPX outperformed the usual returns over the first two weeks after a signal, but then underperformed at each period from one month to a year.
There also hasn’t been much volatility after these signals, as measured by the standard deviation of returns. It’s only eight signals, but the prior instances have tended to lead to a boring, underperforming market.
The table below shows the individual occurrences of the 90-day streaks where the SPX did not close more than 3% below its all-time high. The index has returned close to 12% during the streak, putting it in the middle of the pack. The last time this happened was in 2017. The market pulled back 1.5% over the next month, then moved higher from there, gaining 14% over the next year from the date of the signal. Before that, you must go all the way back to 1995 to find such a streak. Stocks were outstanding after that signal at all time frames.
The good news is these streaks can last a long time. The previous signal was in March 2017, when the streak reached 90 days. The next time the SPX was 3% below a new all-time high was almost 11 months later in February 2018. The June 1995 streak lasted another seven months, ending in January 1996. Those were the two longest streaks, with streaks lasting another three and a half months on average, and the median streak lasting just under two months.
As far as how the SPX performed once the streak ended, it tended to underperform going forward. It’s only eight signals, so you can’t draw any strong conclusions, but perhaps it’s time to temper expectations?
