Long, sideways market periods lead to big gains

Published Wed, May 18 20165:00 AM EDTUpdated Wed, May 18 201610:03 AM EDT

Paul Hickey, co-founder of Bespoke Investment Group

Since peaking out at 2,130.82 (on a closing basis) last May, the S & P 500 has seen its share of volatility. Despite the big swings, though, the index is currently within 3 percent of that all-time closing high from one year ago. Come this weekend, though, the S & P 500 will have gone a year without making a new 52-week high. While that may not sound like much, given that 2014 saw the fifth most daily closes at an all-time high on record, it has been a bit of an adjustment period for investors. Source: Bespoke Investment Group Despite the drought of daily closes at a 52-week high, a one-year stretch without one is not terribly uncommon. The chart below shows the S & P 500's historical streaks of not closing at a 52-week high. Since 1929, there have been 20 prior periods where the S & P 500 went 365 days or longer without one. The most recent of these streaks was from October 2007 through October 2009 which lasted 733 calendar days. To find the longest streak, you have to go all the way back to the late 1930s/early 1940s (1,457 days), while the shortest streak was 365 days back in 1994/1995. Source: Bespoke Investment Group The table below shows the performance of the S & P 500 following each of the individual prior 20 periods where it went a year or more without closing at a 52-week high. Looking at the overall average and median returns for the S & P 500 following day 365 of these prior streaks shows mixed returns. Despite better than average returns one year later, over the following one, three, and six months, the average and median returns are all below the S & P 500's average returns for all periods since 1928. More from Bespoke : Social Media Stock Performance The current streak without a close at a 52-week high is somewhat unique, however, in that the S & P 500 is less than 3 percent from its 52-week high. As shown in the second column of the table, that ranks as the second smallest decline from the prior 52-week high of all the prior streaks. The only streak that saw a smaller decline over the one year period was 1995, and in that period that S & P 500 posted solid returns going forward. Widening the lens even more, in seven of the twenty streaks highlighted, the S & P 500 was less than 10 percent from its prior 52-week high when the one year point was reached. In these periods, the S & P 500 saw positive and better than average returns over the following one, three, six, and twelve months. Based on these prior instances, when the S & P 500 goes an extended period without a new high, the market's prospects going forward were much better following relatively sideways trading (with a lack of upside catalysts) as opposed to a period where the lack of new highs was due to a steep decline. Source: Bespoke Investment Group For more independent commentary and analysis from Bespoke, visit bespokepremium.com/ . Report reprinted with permission.

Richard Schoenberg | Getty Images

Come this weekend, though, the S&P 500 will have gone a year without making a new 52-week high. While that may not sound like much, given that 2014 saw the fifth most daily closes at an all-time high on record, it has been a bit of an adjustment period for investors.