Lots of chatter out there about the giant 1-year gain of 75%
on the S&P 500 from the March 23, 2020 low – actually it’s 74.78%. It may
very well be the beginning of a new bull market, but that does not mean (pun
intended) that we should expect gains like these moving forward.
We ran the numbers on the 1-year rolling returns for the
S&P 500 back to 1949 and while these giant spikes do come at the early
stages of extended bull runs gains of this magnitude have not been sustained
and the market has tended to revert to the mean. The arithmetic mean or average
rolling 1-year return since 1949 is 9.15%, which isn’t bad either.
With lingering pandemic/vaccine and political and
geopolitical issues, all the noise from the Fed and the bond market, Robinhood
and Reddit stock pumping, rich valuations, teetering internals, extended technicals
– and the end of the Best Six Months November-April on the horizon, it is not
inconceivable to expect the market to consolidate over the Worst Six Months
May-October (AKA “Sell in May”).
Last time we had a 1-year rolling return of this magnitude in
2010 when the S&P was up 68.57% on March 9, 2010 from the March 9, 2009
secular bear market low we had a 10.34% correction to the July 2, 2010 low and
a 15.75% rolling 1-year return from March 9, 2010 to March 9, 2011. And let’s
not forget the May 6, 2010 flash crash. So while we are by no means “bearish”
perhaps a little caution and portfolio defense in the near future is not a