2016 started with the worst first week for the market ever. Things continued to get worse and culminated (so far!) on February 11 with S&P 500 11.4% below where it started the year. Everybody was freaking out and calling the end of the world (China! Oil! China! Ouchie!). Things have improved quite a bit since then, but investors are still very skittish. I wanted to see if history can tell us where we go from here.
Let’s take a look at the busy chart below. These are intra-year returns from 12/31 close of the prior year (other analyses may focus on the range from high to low within a year). Red bars are returns from the start to the lowest point of the year, green bars are to the highest, blue dots are the closing returns for that year. Then we have the dotted lines which represent the average for the metric with corresponding color (green for average high, blue for average close and red for average low).
Exhibit 1 – S&P 500 YTD Returns At Highs, Lows & Year-end – 1951 to 2016 (March 8)
Some interesting observations from the analysis of these data:
- The average YTD low was 9.4%.
- This year’s 11.4% decline from 12/31/15 was in the 30th percentile, meaning that there were 20 years with deeper lows.
- Of those worse years average full year return was -7.8%, quite a bit worse than +8.5% for all years. There were only a few years in which there was still a positive full-year return after a YTD decline of over -11.4%, such as 2009 – coming off a real bad year and continuing to sell off before a big bounce.
- Average YTD high was 15.2% and average finish was 8.5%.
- Interestingly the high for 2016 is actually negative -0.3%, so we sold off on day one and never got in the green (although there is a lot of the year left).
- As you can see from the colored dotted lines, the index tends to close towards the higher end of its annual range (73rd percentile).
- The low (so far) occurred pretty early this year (42 days), on average it happens after 118 days (April 22). Average high occurred on August 24 (237 days). I was going to put in a chart on the high/low day counts but it’s very noisy and doesn’t seem to add any predictive significance.
Lots of data there, but not sure if it really tells us much of anything. The 2016 pullback magnitude is towards the higher end and it may augur a less than stellar year. However, the data is far from conclusive and personally I would put it in the “mildly interesting but not terribly useful” file.