The S&P 500 has rallied into year-end following every December 52-week low in its history.
In the midst of the carnage on Wall Street, we are here to bring a little more holiday cheer to Wall Street. Last week, we showed that December spikes in volatility term structure have invariably led to gains by year-end. Today we look at another piece of seemingly bad news, i.e., a new 52-week low in the S&P 500, that may actually turn out to be a gift for investors. To wit:
Yesterday saw the S&P 500 close at a 52-week low for the first time in nearly 3 years. The fact that it occurred in December was a rather uncommon event. In fact, of the 290 52-week lows since the index’s inception in 1950, this is just the 9th occurring in December. The good news for investors? Each of the prior 8 saw the S&P 500 at higher levels by year-end — significantly higher in most cases.
As you can see, the 1987 event was the big winner, with the S&P 500 rallying by more than 10% into year-end. However, most of the events saw sizable gains considering the short window. 5 of the other 7 saw gains of at least 3%. If the S&P 500 were to match the average of the historical events (or median — they’re both just above 4%), it would put the index at around 2650 on December 31. That doesn’t seem unreachable — it’s just a matter of the route the S&P takes to get there.
In any event, like the post on the volatility “gift”, this data point certainly isn’t a basis on which to build a sound investment process — at a minimum, we wouldn’t be putting all of our eggs in this “gift basket”. However, if history is any guide, the new low is also not something, in itself, to get all Scrooge-y over.
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.