Chartology: July 2019

In this month’s edition of “Chartology”, Director of Investment Research Chris Maxey analyzes price changes in the S&P 500 over a daily, quarterly, and yearly basis.

July 2019 Chartology from Bronfman Rothschild on Vimeo.

We’re coming back to discuss another Chartology here and wanted to zero in on another trend and phenomenon of the stock market. Last time we spoke about market drawdowns and whether we thought they were a feature or a bug in the market. Our general conclusion there was that they are a feature and not a bug, for a number of different reasons. If you’re interested in hearing more about that, please reference our last Chartology.

Today we want to talk about something that is a little bit similar, but slightly different. And what we’re going to look at are price changes over one day periods, one quarter periods, and on a yearly basis for the S&P 500. Right here you can see the day-to-day moves for the S&P 500 going back to 1945. And again, we use that as a starting point to capture the post-World War II environment, that economic boom, the stock market boom that we’ve seen taken place since then.

Take a look at this chart. You’ll notice that it’s incredibly noisy. There are a lot of gyrations on a day-to-day basis, both positive and negative. Ultimately what that translates into is a 53% chance that the market will be up, and a 47% chance that the market will be down. That is in essence a coin flip. On any given day, it’s a coin flip more or less as to whether the market will be down or up.

But what we see as we start to take a step back and take a step into longer time frames, is that in any particular quarter, patterns start to develop, whereas we saw a lot of noise, a lot of gyrations, on the day-to-day price chart. As we look here quarter to quarter, we’ll actually see that there is a must greater likelihood that the market will be up than it will be down. So about 71% of the time, the stock market is going to be up in any particular quarter. We see that play out over recent timeframes, over intermediate term timeframes, over long-term timeframes. That has been very consistent and persistent in the market.

Now, take one step further, you might see where this is going, and if we look at any calendar year back to 1945, we actually see that the number of negative calendar years decreases even further. For any particular calendar year, there’s about an 80% chance that the market will be up vs. a 20% chance that the market will be down. And that’s actually consistent with what we’ve seen in the last 10 years here. We had 2018, where the market was down. We had 2008, where the market was down. So, in the course of the last ten years, we had two years down and eight years up.

Now the reason we talk about this and we focus on a phenomenon like this in the market is that we really want to get people away from thinking about daily moves. They tend to be quite random and unpredictable, as we saw on the first graphic. And secondarily, at the end of the year, a lot of prognosticators like to talk about their stock market predictions for the upcoming year, and more or less, they’re always going to say that we believe the stock market will be higher by about 8-10% in the coming year. The reason that they say that it is really because of what you see right here. The stock market, in the vast majority of years, is going to be positive.

So next time you hear someone talking about that, say “Oh yeah, I understand exactly why that is,” because the likelihood is pretty significantly in your favor of saying the market is going to be up this year. But again, focus on long-term, focus on the things that we’ve come to understand, and come to tell people. Avoid those short-term thinking. Avoid the focus on short-term market gyrations.

We hope this has been useful as always, and if you have any questions, please reach out to your advisor, or take a look at our website at www.belr.com. Thank you very much.


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