Just an average rally from the March 23 low would take the S&P 500 Index to 4,405 by Q4 2022.
Record Breaking Selloff Sends Stocks Tumbling
After the colossal Stock Market declines of February and March 2020, many investors are spooked. The outbreak of COVID-19 sent Stocks tumbling at a record pace, as talk of economic upheaval and a possible depression saturated the airwaves in late March. Volatility touched near record levels and remains high at this time.
Since the the dramatic decline, there has been talk of a “re-test” or perhaps a “double bottom”. The theory goes that the market must re-test or re-visit the dramatic lows, before moving significantly higher. Theories do not always hold true.
Record Breaking Rally Strengthens the “Bull” Case
Stocks have delivered a record-breaking rally since touching bottom on March 23, with the S&P 500 Index higher by 24.7% in 17 calendar days. Bull markets are said to begin when Stocks rally 20% from a significant low. The holiday-shortened week just completed was the best week for Stocks since October 1974! The S&P 500 was up more than 11%, while the Dow rallied more than 12% and the Nasdaq almost 10%.
So, what should investors expect going forward? What does the historical data tell us about Stock Market potential? First, we looked at the 21 major declines from 1929 to 2020. Here is the summary, based upon the S&P 500 Index:
- The median (average) decline lasted 386 days (12.6 mos.) from top to bottom;
- The median (average) decline was 33.5% from top to bottom; and
- The Great depression (1929) delivered the largest decline (86.2% in 989 days).
The 2020 decline lasted 33 calendar days from February 19 to March 23. The decline gave-up 33.9%, from 3,390.8 to 2,237.4, so the magnitude of the decline was quite average. It was the rapidity of the move that overwhelmed most investors.
|An Average Rally Would Take the S&P 500 to 4,405 by October 2022!|
Next we looked at the 20 rallies in the 1929 to 2020 period. Here is the summary, again based upon the S&P 500 Index:
The median (average) rally lasted 958 days (31.4 mos.) from bottom to top;The median (average) rally was 96.9% from bottom to top.The 1990s delivered the longest rally (417% in 3,452 days or 9.5 yrs.)
|What does all this mean for investors? Nothing for certain, as there are no guarantees in the investment world. If however, the March 23 bottom holds and the next rally is only average (96.9% in 958 days), the S&P 500 will be near 4,405 in Q4 of 2022.|
Given the enormous Government response in the name of “financial stability,” such a rally may well be possible. Rate cuts, Bond purchases, Swap Line increases, Cash to workers, and Cash to Corporations all measured in the trillions of dollars have put a floor under the financial markets for the time-being. Fasten your seat-belts.
Remember, past performance is no guarantee of future results.