Market Insights: Stat of the week - 100 days to go

100 days to go

From time to time, we like to share a stat we have seen that we feel is quite interesting and that, hopefully, readers will find insightful.  Having just crossed over the point where there are just 100 business days left in the year, we'd like to share a note that LPL Financial has recently published:

"Going back to 1928, the S&P 500 has been higher year to date 56 times with 100 days to go. The rest of the year has averaged a return of 4.2% and has been higher 83.9% of the time. The flip side is when it is down year to date with 100 days to go, the rest of the year is down 2.3% on average and higher only 42.9% of the time. In other words, a strong start to a year historically leads to higher prices to end the year and vice versa.

Now, what happens if it is a strong year? There have been 40 other times the S&P 500 was up more than 6% for the year with 100 days to go (like 2016), and incredibly, the rest of the year is up 5.3% on average and higher 90% of the time. Thus, a strong start to the year has led to even stronger returns for the rest of the year. What about the full-year returns? Only once in history has the S&P 500 been up more than 6% with 100 days to go and finished red, and that was in 1929. Therefore, 39 of the previous 40 times the full year finished green, making the chances for a massive sell-off during the rest of this year rather slim."

This is definitely encouraging; however, we do not place our faith in the 90% positive probability that this statistic suggests.  The majority of these instances were in times where equity valuations were lower, inflation was declining, or corporate earnings were in an upward trend.  That being said, there isn't much precedent in history for our current environment, and so it wouldn't necessarily be wise to infer that, since those conditions are not currently present, we won't see the same result that this statistic presents.  In our view, one important positive sign is that the corporate earnings recession that the U.S. has been in for over a year appears to have troughed in the first quarter.  In fact, there is evidence that the equity markets are transitioning from an interest rate-driven bull market to an earnings-driven bull market.  If that is the case, the secular bull market in the U.S. could extend much further.