Looking back on the last six months of the S&P 500’s performance, it’s hard to overstate just how remarkable of a run it has been. There have definitely been periods where the S&P 500 rallied more (and many cases a lot more), but the nearly complete lack of downside pressure has been extraordinary. Just look at the chart below. There have only been two periods where the S&P 500 saw more than a 1% drawdown on a closing basis from a closing high, and the largest drawdown was just 2.2%!
There’s hardly been any downside pressure at all. In the chart below we calculated the cumulative amount of downside pressure in the S&P 500 on a rolling six-month basis going back to 1928. To do this, we simply added up the magnitude of the daily declines (measured in basis points where every 100 bps equals 1 percentage point) in the S&P 500 over a six-month rolling window. Heading into today, the cumulative impact of all the S&P 500’s down days over the last six months was a total of 1,230 bps.
How does that stack up relative to other periods? Let’s put it this way; since 1928, there have only been three other periods, which all spanned from 1964 through 1966, where the cumulative impact of down days over a six month period was less than the last six months. The most extreme of these periods was in May 1964, when the cumulative six-month downside impact was less than 1,000 bps. We often hear from people who are amazed at how sanguine the market can be in the midst of all the headlines surrounding Washington and the state of geopolitical affairs, but in the 1960s, the US saw more than a little bit of geopolitical and political turmoil as well! And just like today, in the 60s we saw long periods where the market did nothing but go up. This is a reason we always note that politics and investing don’t mix!
So what can we expect from the market after such an extended rally without much in the way of pullbacks? To help answer this question, we just published a report looking at 18 prior periods where the S&P 500 was closely correlated to the current period and analyzed the returns going forward.
For anyone interested in the trends we uncovered, this report is a must-read. To see it, sign up for a Bespoke Premium membership now!