Investing In An Elevated Market

Two years ago to the day on January 20, 2018, I wrote a post, Will The Stock Market Ever Decline Again? and it seems in January 2020, investors are faced with the same question. Written commentary today is mirroring commentary of two years ago as January's market has gotten off to a strong start just like in 2018. Historically, strong starts to a January are a positive predictor for market returns in the balance of the year. That was not the case in 2018 as that year was a down year for the S&P 500 Index.

Investors are now faced with a market that is generating another streak consisting of positive quarterly returns as seen in the below chart. The green bars indicate the Index generated a positive return in the respective quarter. Noted on the chart are two sets of quarterly returns where the market rose for nine consecutive quarters. The nine quarter streak was broken in the second set after I wrote that earlier referenced article in 2018. The market is now working on another streak with five positive quarterly returns since the beginning of Q1 2019 although this quarter is yet to be completed.

(Click on image to enlarge)

Investors who deployed cash into stocks in January 2018 were quickly met with a pullback in stocks culminating in a negative first quarter 2018 that ended the second nine quarter positive return streak. The recovery from the March low was steady until the fourth quarter of 2018 which saw the market decline nearly 20%. Importantly though, the return for the S&P 500 Index over this two-year stretch is 19%. As is often said, patience is a virtue.

(Click on image to enlarge)

Since the beginning of December 2019, the market has accelerated even more quickly to the upside. This move higher is occurring in an environment with a low level of volatility. As the below chart shows, the S&P 500 Index last had an up or down move in excess of 1% in mid-October last year. And concurrent with the market's move higher is the fact most of the moves have been positive ones; hence, more green than red bars on the chart.

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