What Does History Say About Markets That Fail To Make New Highs For Over One Year?

Last New S&P 500 High Came In May 2015

On May 20, 2015 the S&P 500’s intraday high was 2134. Over a year later, that level has never been exceeded. What does history tell us about markets that fail to make new highs for a long period of time?

77% Of The Cases Ended With A Bear Market

Market data from similar periods aligns with a May 16 article, History Says A Big Move Is Coming For Stocks. From Bloomberg:

On May 23 the S&P 500 will extend its streak without a record to 253 trading days, matching the drought that lasted through February 1995. Only two other long-term rallies went without new highs for longer — 272 days through 1984 and 361 days through 1961. Bull markets end when a benchmark index falls 20 percent from a record. More often than not, such dry spells are ominous for equities. Among the 13 instances since 1946 that began with stocks going as long as they have now without posting new highs, 10 ended in bear markets.

23% Of The Cases Were Followed By Big Gains

As noted on May 13, history says we should also have contingency plans in place for the lower probability outcome, a push to new highs followed by significant gains. From Bloomberg:

On the bright side, on the three occasions when bull markets survived such slumps, U.S. equities went on to rise 22 percent in the year after a new high was reached. Moreover, the American stock market is usually much farther away from its most recent peak than it is now. On any given day since 1946, the S&P 500 has been about 14 percent from a record, data compiled by Bloomberg show.

Which Way Is The Stock Market Leaning In 2016?

This week’s stock market video reviews the evidence we have in hand in an effort to gain some insight into which way stocks may break in the coming weeks or months.

Inflection Point Periods Require Flexibility

Given the current state of Fed policy/earnings/valuations, it is easy to understand how the big move could come to the downside. However, history tells us that it is possible for long/sideways/frustrating periods in the stock market to be resolved in not only a bullish manner, but an impressive bullish manner. If the bulls are able to push stocks to new highs, the S&P 500 must first make a higher high on a sixty-minute chart, which requires a close this week above 2085.