S&P 500 Breaks Through New All-Time Highs—Now What?
Thirty-three days. That’s how long the shortest bear market in history lasted, and it occurred this year.
Bear markets are defined by a 20% or more plunge from the most recent highs. Between February 19 and March 23, the S&P 500 declined 34% according to Yahoo Finance. An official bear market.
Prior to the 2020 bear market, the shortest bear market in history lasted 67 days back in 1929, and the longest bear market lasted 929 days in 2002. According to Yardeni Research, bear markets have lasted an average 302 days over the past 100 years.[1]
Considering the historical data, many market pundits and economists are bit flummoxed that the 2020 bear market only lasted 33 days. We are in the midst of a global pandemic after all. Economies around the world have been devastated and the recovery is still risky and in the early stages.
But the numbers don’t lie…
The 2020 bear market was officially placed back in hibernation when the S&P 500 broke through new all-time highs on August 18. The S&P 500 has rallied 51% from its March 23 lows, effectively wiping out all of its losses from the bear market, and has continued to trek higher, setting a new all-time closing high on August 25.
Hello, bull market!
Now, the question on Wall Street’s mind: Is the rally sustainable? Based on historical precedence, the S&P 500 could be gearing up for even higher levels. In fact, Sam Stovall, a chief investment strategist at CFRA, recently revealed that the current bull market could be on track for higher levels if it continues to follow historical precedence.
According to Stovall, the S&P 500’s 51% gain off the March 23 lows puts it ahead of most bull markets’ six-month returns since 1932. The bull market’s average six-month gain was 30.1%. Looking further out, the average 12-month gain for bull markets since 1932 is 47.9%—and six of those bull markets had an even stronger recovery pace than the current 2020 bull market.[2]
Interestingly, Bespoke Investment Group predicted back in July that the S&P 500 was heading higher.
July 1 marked 100 days since the March 23 lows and, during that time, the S&P 500 had rallied nearly 40%. Per Bespoke’s research, that was the strongest 100-day gain for the S&P 500 in more than 80 years. In previous instances where the S&P 500 had rallied 33% or more in 100 days, the index climbed an average 7.32% and 13.47% in the following six months and 12 months, respectively.[3]
Most investors prefer buying stocks at the lows. With the market perched at record highs, what comes next is not so easy to ascertain. The stats and history can help guide our way, but ultimately it comes down to your own investment process and analysis.
To learn more about Nicollet Investment Management and our process for selecting stocks in a market at record highs, please give me a call.
Please click here for important disclosures.
[1] https://www.reuters.com/article/us-usa-stocks-s-p500-bear-graphic/say-goodbye-to-the-shortest-bear-market-in-sp-500-history-idUSKCN25E2R9
[2] https://www.marketwatch.com/story/if-stock-market-history-repeats-the-s-p-500-will-close-at-a-new-high-by-the-end-of-august-11597676415
[3] https://www.marketwatch.com/story/its-been-100-days-since-coronavirus-sent-the-stock-market-to-rock-bottom-heres-what-comes-next-after-its-best-rally-over-that-period-in-80-years-2020-07-01