There looks to be much less optimism now than historically
The S&P 500 Index (SPX) gained over 20% year-to-date through October for just the ninth time since 1950. Historically, this has not indicated an overbought market in the least bit. The last two months of the year have performed wonderfully after these occurrences. Per the table below, November has been up eight of eight times, averaging a gain of 3.65%. The S&P 500 has averaged a gain of over 6% for the rest of the year when it’s up 20% or more through October. This week, I’ll compare this year’s price action to past years. Maybe it can give us insight into what to expect as 2021 comes to a close.
Similar Years in Comparison
Using a least squares method, here are the 10 years with the most similar chart path. The most similar year through October using this method was 2013. The S&P 500 went on to gain 5.23% for the rest of the year, while the 10 years with the most similar chart have only slightly better returns than other years. Still, however, the returns are nothing to complain about.
Gauging With Investors Intelligence
I like to use the weekly Investors Intelligence (II) survey as a sentiment gauge. The survey is a collection of over 100 published newsletters. The editors at Investors Intelligence determine whether the newsletters are bullish, bearish, or expecting a correction (defined as short-term bearish, long-term bullish).
The most recent poll showed 49% of newsletters as bullish and 24% as bearish, a difference of 25%. Compared to the previous two instances which occurred since the 2009 bottom where the S&P 500 gained at least 20% through October, there’s much less optimism now. The last two times, the bulls beat the bears by 36%. Both of those years saw rest-of-year returns of more than 5%. Less optimism now could indicate more potential buying power than those two years. Please note that II has data dating back to 1963, which is why the table below omits returns in 1958 and 1954.
Continuing Statistics Through October and End of Year
The table below shows each of the individual years that the S&P 500 gained at least 20% through October. It also shows the Cboe Market Volatility Index (VIX) level at the end of October and end of the year. With the VIX above 16, it’s slightly higher than what seems the typical reading of between 13 and 14 (three of four readings fall in this range). The outlier was 1997 in which the VIX was at 35 with two months to go in the year.
Finally, the table below shows each of the years listed above along with returns for oil, gold, and copper. I thought it would be interesting to see how other assets were performing during the stock rallies through October. For oil, there aren’t similarities between this year and other years. Oil, thus far, has gained over 70% on the year. The two other times oil gained at least 10% (2019 and 1989), it did well for the rest of the year.
Gold has struggled this year which isn’t uncommon during big stock rallies. Gold hasn’t fared too well for the rest of the year either in these instances. Copper, like oil, has been booming year-to-date. It’s up nearly 25%. Copper rallied similarly in 1958 along with stocks gaining about 23%. Copper fell slightly for the rest of the year that year.
