Posted by Jeffrey Buchbinder, CFA, Chief Equity Strategist
Friday, November 17, 2023
Additional content provided by John Lohse, CFA, Analyst
Following its post-summer malaise, the S&P 500 has sternly gained steam, bouncing 9.5% off the October 27 low. Fueled by a softening CPI print, surging performance from top-heavy constituents, and a favorable technical backdrop, the index has its January 2022 all-time highs in sight.
It’s been 471 trading days since the S&P 500 reached its all-time high of 4,796.56 on January 3, 2022. This marks the 11th time since 1950 that it’s traded below a previous all-time high for over a calendar year on a total return basis; the last time being March 2012, which lasted for 1,128 trading days. The longest streak since 1950 occurred between September 2000 and October 2006 when the index (total return) traded below its previous high for a staggering 1,541 days. The chart below shows the duration of such occurrences.
To date, this period marks the seventh longest without a new high since 1950 and has experienced the fourth smallest drawdown. Since the January 3, 2022 high, the index met its trough of -25% on October 12, 2022, and we’re still not back at those highs nearly 23 months later! The largest drawdown we saw was a 55% decline during the Great Financial Crisis (GFC). In the year following the recovery from the GFC (April 2012 to April 2013) we saw a 14% total return from the S&P 500, which lands right at the average of these periods. There was only one period in this study in which the total return of the index was negative one year after the recovery, albeit at -1% from July 1976 to July 1977. The chart below shows peak drawdowns of the previous 10 instances and their subsequent one-year returns post recovery.
As of this writing the index sits just about 6.5% below the January 2022 all-time highs. While LPL Research maintains a year-end fair value of 4,300–4,400 based on an estimated $230 in earnings per share next year, it’s important to note where the market stands relative to history. Technical evaluations show a recent breakout above resistance at 4,400 and a possible re-test of a key 4,600 level. The next six weeks are among the best seasonally for stocks on the calendar. And although breadth remains relatively underwhelming, technology-oriented names continue to be a propellant.
As we get closer to the end of the year and the two-year anniversary of the January 2022 highs, consider what history tells us about the timetable for recovering bear market losses. It suggests that a new record high may not be far off.
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