A backtest on what happens after a big S&P 500 rally

by Michael Tarsala

After six months of the S&P 500 going up at least 28% -- like it did October to March -- the folks at Birinyi Associates worked up a cool backtest on what happened next for the index the past 20 times the index saw a similar rally.

The takeaways:

• Both the average and median returns were slightly up in the prior one-month, three months and six months.
• In 15 of 20 instances, the index was up again 3 months out, and in 13 of 20 instances going one month and six months out.
• That type of strong performance was nearly matched only once in the subsequent six months, in 1935.
• Only once were those gains completely wiped out in the subequent six months, in 1930.
• A nearly 10% drop in the six months following the 2010 rally was the second-worst in the study.

Source: Ticker Sense, Brinyi Associates Inc.

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