Two different firms took a look at the market’s big gains and came to the same conclusion: more upside could follow. Ned Davis Research’s Ned Davis looked at every year that the S&P 500 started off with gains in January, February and March, something that’s happened 22 times since 1930. He found that the remainder of the year was higher 20 of those times. The average gain for those nine-month periods was 7.2%, beating the 5.8% average over all April-December stretches. “I did not find the gains all that impressive compared to all cases historically over the past 90 years,” Davis wrote.
And it should be noted that the two exceptions occurred in 1930, when the S&P 500 tumbled 39% from March to December, and in 1987, when the index slumped 15% during the last nine months of the year due to Black Monday. It’s a reminder that when markets go bad, they really go bad.
UBS strategist Keith Parker took a different tact. He looked at how markets have performed since purchasing managers’ indexes—a near real-time gauge of economic activity—bottomed, which is what appears to have happened at the end of 2018. The MSCI All Country World Index is up 14% so far this year. That’s about six percentage points more than the average of previous post-trough bounces.
Read our recent cover story: This Bull Market Has No Expiration Date
The good news is that the MSCI ACWI has gained 25% on average following bottoms in global PMIs, which means that there could be more room to run, Parker said. Of course, that comes with a pretty big caveat. “A sustained turn in growth and earnings are key to further upside,” Parker wrote.
Write to Ben Levisohn at Ben.Levisohn@barrons.com