S&P +20% This Year; What’s Next?

The S&P 500 will most likely end the year at least 20% higher than where it started. Sounds like an outsized return, no? We pulled the performance data for the index back to 1928 (1958 to present actual data, prior to that recreated) from NYU valuation guru Aswath Damodaran’s website to see just how unusual this year has been.

A few quick facts to put that 20% in some historical context:

  • Since 1928, the S&P has risen 20% or more 31 times in a calendar year, or 35% of this time period.
  • The current recovery (2009 to the present) shows 2 years with +20% performance: 2009 (26%) and 2013 (32%).
  • The average return for the S&P in the year after a +20% move is +11.5%, basically the same as the average of all years in the time series (11.4%).
  • The longest streak of +20% gains was from 1995 to 1999. By year the returns were: 1995 (37%), 1996 (23%), 1997 (33%), 1998 (28%) and 1999 (21%).
  • Of the 31 years in the time series after a +20% gain, only 8 showed a negative return. The worst next-year performance was in 2000, with a -9.0% return. Also worth noting: 1929 (down 8.3%), and 1962 (down 8.8%).
  • Also worth knowing: the largest one year gain for the S&P 500 was 1954, with a 52.6% advance. The following year’s performance was not bad – up another 32.6%. The worst year since 1928 for the index was 1931, down 43.8%. The following year posted an 8.6% decline.

By now you probably get the idea: 20% return years aren’t all that unusual.They also don’t presage a major correction or crash. They can even continue for a while (like the 1990s) or they can end up reversing (albeit benignly) in the following year.

Twenty percent years, in short, tell us nothing about the future; don’t let anyone tell you otherwise.

Link to the data: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

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