The S&P 500 index, one of the most followed stock indexes in the United States, has gone 529 days (without a 10% or greater correction) since the rally began on April 23, 2020. For some investors this statement alone could be enough to turn from excited to cautious. Then sprinkle in some flashy headlines from the media and those same investors can go from cautious to scared.
However, journalists need to gather clicks and increase viewership, and those flashy headlines of caution are often uttered without knowing exactly what will happen next. I have fallen victim to the same type of thinking myself. However, in examining data (have I told you lately how much I love data?!), flashy headlines that aren’t based on data and research simply shouldn’t be taken at face value.
Rally the historical data!
According to Ned Davis Research, since 1946, the average number of days for a stock market rally is 353 days. Additionally, the market has rallied over 100% since April 23, 2020. Considering that astounding number, I looked at all of the rallies which have had over 90% gains for more clues, and here is what I found:
- There have been 6 since 1946 which have 90% or more in gains. Excluding the current rally, the other 5 all had significantly longer lengths.
- The shortest rally was from 9/14/1953-9/23/1955. It lasted 739 days, or exactly 200 days longer than the current streak (at the time of this writing).
- The other 4 were all more than 1000 days long.
- The average of all 5 other instances was 1,483 days, or nearly three times as long as the current rally!
Before I get accused of saying that we have lots of upside, please note that 5 observations is a low frequency and therefore, we can’t read too much into this. However, what we can learn is that just because we have had an astounding rally, does not mean that doom is guaranteed. In fact, historically, we have observed far longer and larger rallies.
Cautious, not scared
There are still reasons to be cautious, but not so much to be “scared” of the rally. Yes, COVID is still raging on, geopolitical risks are very real and very difficult to predict, and economic estimates have potentially been higher than reality – but this rally may also continue for quite a while.
These are all reasons to stick with a long-term plan. Particularly one which employs flexible, data driven strategies. Stay cautious, but don’t let the headlines scare you. Ignore the noise and look to your financial advisor for the data and facts.
Data source for article: Ned Davis Research Chart, S&P 500 Rallies Since 1945 of At Least 10% (without and intervening 10% or more correction – from 1945)
Investment Advisory Services offered through Trek Capital Management LLC., an (SEC) Registered Investment Adviser.
Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 21-99