Market Overview

It's Been A Year Since The S&P 500 Hit New Highs: Good News Or Bad News?

It's Been A Year Since The S&P 500 Hit New Highs: Good News Or Bad News?

So far in 2016, the S&P 500 has avoided slipping into the dreaded bear market everyone has feared. After a weak start to the year, the index has rebounded and now sits up 1.3 percent in 2016.

But while the market hasn’t plummeted, it also hasn’t made much progress. In fact, it’s now been over a year since the S&P 500 established a new all-time closing high at 2,130.82 on May 21, 2015.

Since 1955, there have been only 12 other unique periods of at least one year in which the S&P didn’t make a new all-time high. Exactly half of those periods took place during bull markets and the other half took place during bear markets.

While these are fun facts to know, traders are only concerned about what the one-year slump says about where the market is headed from here. LPL Financial looked at the average market returns following the previous 12 droughts to get an idea of where the market could be headed.

Related Link: Michael Batnick: Was That Just A Bear Market?

On average, the S&P 500 produced nearly flat returns in both the three- and six-month periods following these one-year slumps. However, when looking ahead a full year, the S&P 500 averaged roughly a 9.0 percent gain.

“Isolating the bull markets reveals that one-year periods without a new high have actually been very good times to buy stocks,” LPL CIO Burt White added.

The firm found that, when the one-year drought occurs within a bull market, the S&P 500 subsequently averages 12.5 percent six-month gains and a 20.5 percent one-year return.

In other words, if you’re optimistic that the bull market is simply resting and not completely dead, now could be a very good time to buy the SPDR S&P 500 ETF Trust (NYSE: SPY).

Disclosure: The author holds no position in the stocks mentioned.


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