All Gain, No Pain

The inverse of the famous saying “No Pain…No Gain” which was used by many exercise gurus in the 1980s best epitomizes a stock market that climbs the wall of worry with minimal pullbacks. According to the great research folks at Bespoke, the year 2021 may just go down in the record books as one of the most prolific years in the Post-WWII modern era of investing with regards to this concept.

Before we describe what Bespoke found, we thought we could develop, via a famous children’s story, a great way to remember what their research unearthed. Hence, the reference to the famed fairy tale Goldilocks and the 3 Bears. As the story unfolds, when Goldilocks enters the home of the 3 Bears, she finds a bowl of porridge and, upon tasting it, she uses the hot/cold temperature reference to define its near perfect taste. In the investment world, a “Goldilocks Economy” has come to be recognized by one that is not “too hot” nor “too cold.” Economists suggest that the characteristics of a “Goldilocks Economy” being not to hot nor too cold to mean the following:

  • Strong Economic Growth without runaway inflation
  • Strong Labor Market without runaway wage gains
  • Modest increase in Commodity prices

Most economists would be hard-pressed not to characterize the description of today’s economy as being idyllic or “Goldilocks” nature, or not too hot and not too cold.

According to our friends at Bespoke, there have been only five other years in modern US Stock Market History (since 1945) where through August 31st, the S&P 500 was up 10% or more while not suffering a drawdown less than 5%. Those years were 1961, 1976, 1985, 1989 and 1995. Our curiosity got the best of us, and we wanted to know if such market strength begat market strength or did those other “All Gain No Pain” years rollover and wither away. We found in fact, that they did not fade away as the average performance of the S&P 500 from September 1-December 31 in those five periods was +5.73%. Simply put, the Bull Market did not give way but continued to march forward into the close of the year.

Another example of strength begetting strength was unearthed by Bespoke as it evaluated given calendar years where the S&P 500 posted 40 or more all-time record closing highs. Since 1945, there have been five years, 1964, 1987, 1995, 1997 and 1998 where this phenomenon has occurred. So far, as of drafting date of this article (September 3rd), we have had 54 all-time record closing highs in 2021. That puts us on pace for 80, which would eclipse the former record of 77 in 1995. Once again, our curiosity got the best of us, and we took a look at those five years, asking the same question as to how the last four months of the year finished. Amazingly so, the only year in which the last four months did not register a positive return was 1987. That of course, was the year when Black Monday, October 19th, suffered an intraday -22% drop in one day. However, the interesting twist is, even including the year 1987 in the mix, the median return of the S&P 500 in those five years was +7.7% for the final four months of the year. Once again, strength begat strength under this type of bullish scenario and the rally simply continued until the end of the year.

In closing, if history repeats itself, as we believe it will, look for a very nice finish to the Year 2021!!

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