The equity markets continue to move upward at a pretty exciting clip this week. Using the S&P 500 as a proxy for the overall market, current levels are more than 20% higher than one year ago:
20% seems like a big number, right? I was curious how many times the S&P 500 had shown year over year gains of 20% or more, and so I did a little home work. With an historical data file download for the index from Yahoo's Finance page, I pulled out the price of the index on the first market day in January for each year going back to 1950. Using this subset of data and a simple spreadsheet calculation, I found that the S&P 500 had gained (from one January to the next) 20% or more 12 different times. That's 12 times in 63 years. If you loosen up the criteria a little to 10%, the number jumps to 32 times the index gained at least that amount in a year over the 63 years studied.
Of course, that means that there were many years that came in at less than 20% or even 10%. Using only this January data, there were 47 years with a positive return of any amount, meaning there were 31 years with some gain but less than 10%. And then there are the years with no gain or even a loss.
The worst yearly return for the data in this study was for the period between January 2008 and Jan 2009...
A year over year loss of 37.58%! (in the Yahoo data, they show a number more like -40%). But how common are double digit losses? Diving back into the data, it looks like there were 3 instances of a year over year decline of 20% or more, and 7 instances of a 10% or greater fall.
What can we take away from this data? There are a few concepts I would like to highlight:
David R Wattenbarger, president of DRW Financial
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