The S&P 500 Snapped a Key Streak--Now What?

The S&P 500 Index (SPX) fell 1.4% last Wednesday, ending a streak of 47 straight trading days (a little over two months) without a 1% pullback. The last such streak occurred before Covid in December of 2019. Facts like this tell us a little bit about the trading environment we’re in and offer insight into where we might go next.

47 Days Since a 1% Pullback

I went back to 1950 and found each time the streak got up to 47 trading days. The first table shows how the SPX performed after this point. The recent occurrence was the 62nd signal since 1950. These streaks typically occur during a steadily rising stock market. The short-term returns are good after the 47th day, with the SPX gaining an average of 0.31% over the next week with 62% of the returns positive. Compare that to a typical index return for that timeframe of 0.17%, with 57% of the returns positive. The longer-term returns, however, weren’t as good. They were still positive over half the time, but there was less upside, so the average and median returns were lower from two weeks onward.

During this 47-day streak, the S&P 500 gained just over 10%, which was the seventh highest return out of the 62 occurrences. The average return during the streak was 6.3%. I broke up the returns based on whether the S&P 500 was especially strong (8% or more) during the streak and compared that to the other times. It has been good news when the index performed strongly during the streak. The S&P 500 did significantly better going forward after these instances; a month after these streaks, the SPX averaged a 1.33% return over the next month, with 60% of the returns positive. When the index wasn’t as strong during the streak, it averaged a return of just 0.09% with barely half of the returns positive.

When the Streak Ends

In the analysis above, it shows 47-day streaks without a 1% pullback on the S&P 500 were generally followed by strong short-term returns but with limited long-term upside. When stocks were especially strong during the streak, like the recent instance, stocks outperformed afterwards, in the past. But this streak ended last Wednesday, so next I looked at how the S&P 500 performed after the streak ended. I want to know if the end of the streak tends to be the end of strong stock market returns, or if the weakness on the one-day pullback was confined to that one day.

The first table shows S&P 500 returns after the streaks end. The second table, again, shows typical index returns for comparison. The next day after that first 1% drop tended to be weak and that was the case with the recent occurrence too as the S&P 500 fell 0.25% on Thursday. After that, however, the returns are very close to anytime returns.