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What does the S&P500′s performance from May – June tell us about future returns?

With the month of June off to a bearish start (the s&p500 lost 2% this past week), we wanted to see what the historical implications are. We reviewed price performance data going back to 1988 to analyze what the s&p500′s return from May to June might be able to tell us about future returns.

From 1988 – 2010 May to June (the closing price of the s&p500 at the end of June vs end of May) has averaged a return of (-0.56%). A more recent time frame of 2000 – 2010 shows that May to June has averaged a return of (-1.83%). We broke our study into those two time frames to review the data in absence of the famous bull market that lasted from the late 80′s thru the 90′s and see how the data might change.

So when May – June shows a positive return, how does the s&p500 fare 3 months out? 6 months out? And 12 months out? Vice versa, when May – June shows a negative return, how does the s&p500 fare 3 months out? 6 months out? And 12 months? Finally, when May – June is flat, how does the s&p500 fare 3 months out? 6 months out? And 12 months out? Is there a significant difference when one analyzes the data going back to 1988 versus when analyzing the data going back to just 2000? Those are the questions we wanted to know the answers to.

The following data is based on returns from 1988 – 2010:

There have been 8 times when the s&p500 was positive from May – June, averaging a return of 3.1%. The average 3 month return was 0.48%, the average 6 month return was 6.3%, and the average 12 month return was 12.4%.

There have been 10 times when the s&p500 was negative from May – June, averaging a return of (-3.5%). The average 3 month return was (-2.3), the average 6 month return was (-0.2%), and the average 12 month return was relatively flat.

There have been 5 times when the s&p500 was relatively flat from May – June. The average 3 month return was 5.3%, the average 6 month return was 10%, and the average 12 month return was 13.3%.

The following data is based on returns from 2000-2010:

There have been 3 times when the s&p500 was positive from May – June, averaging a return of 1.7%. The average 3 month return was (-0.43%), the average 6 month return was 3.6%, and the average 12 month return was 1.7%.

There have been 5 times when the s&p500 was negative from May – June, averaging a return of (-5%). The average 3 month return was (-5.7%), the average 6 month return was (-5.2%), and the average 12 month return was (-14.6%).

There have been 3 times when the s&p500 was relatively flat from May – June. The average 3 month return was 7.3%, the average 6 month return was 12%, the and the average 12 month return was 12%.

Observations?

The first thing we notice is how big of a difference there is in % return following a negative May – June period when reviewing the data going back to just 2000 as opposed to 1988. This likely has alot to do with the fact that from 1988 – 1999, the s&p500 went from 257 to 1,469, a staggering gain of 471%. In addition, we find it interesting that the most bullish implications for 3, 6, & 12 month returns occur when May – June is relatively flat, not when it is positive like one might expect (although that is also bullish), this is also regardless of time period (be it 1988-2010 or 200-2010). Furthermore from 1988, when a negative May – June return occurs, it seems like the s&p500 experiences immediate downside in the following 3 months, but then spends the next 9 months battling back to break even. This is a stark contrast when you only look at the data from 2000. When a negative May – June return occurs then, the s&p500 experiences an immediate correction of 5% in the following 3 months. It then seems to spend the next 6 months trading sideways before making another significant correction of about 10%, totaling a 12 month decline of almost 15%.

If the average returns over the last 11 years play out, and May – June does indeed register a negative return as it is on track to do, we could possibly be looking at the s&p500 around 1,110 12 months from now. Hopefully, the average returns over the last 23 years (when the s&p500 is relatively flat 12 months after a negative May – June period) is what plays out. Who knows? Maybe the index will rally back the rest of this month and finish the May – June period positive or flat, which as the data shows has bullish implications over the last 11 and 23 years. That’s what makes the stock market so intriguing, it is only a matter of time before you receive the answers to your questions. Using data like this though can serve as a guide as we await those answers.

 

 

The information used to compile this report can be found by clicking here and clicking the tap that says “S&P 500 MONTHLY PERFORMANCE DATA” and downloading the file titled, “Monthly and Annual Returns.”

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