Is a prolonged stock market surge inevitably followed by a market collapse?
In a study by fund manager Sven Lehmann, the chart history of the US index S&P 500 Total Return was analysed, dating back to 1871. The focus was on finding out how often the S&P 500 rose for at least six consecutive months and what happened next.
The typical bull market in the S&P 500 Total Return index lasts about 1,011 calendar days, or roughly 2.8 years. This duration is about 3.5 times longer than the average bear market. Multiple bull markets have been identified historically, typically lasting years rather than months.
After six months of rising prices, the index continued to rise in the seventh month, adding an average of 1.28%. In 70% of the cases, the S&P 500 continued to rise after six consecutive months of increase. On average, the S&P 500 rises from one month to the next in 61% of cases.
After a further three months, the S&P was, on average, 4.01% higher. This is significantly higher than the long-term average increase of 0.74%. However, specific data from the search results is not directly available regarding what happens after a six-month bull run in terms of precise quantified returns.
Returns can continue but depend on valuation and market conditions. With the S&P 500 currently trading at historically elevated valuation multiples, suggesting potential vulnerability, caution may be advised.
In 14 of the 47 instances where the S&P 500 rose uninterrupted for six months, the rise stopped after six months. There were also notable rallies of 15 months, such as from March 1958 to June 1960 and another from November 2016 to February 2018. However, the study did not provide specific information about what happened after the longest rally of 33 consecutive months.
In summary, while the continuation of returns following a six-month bull run can vary markedly depending on market conditions, good recent months on the stock market are more likely to lead to above-average investment results in the future. However, elevated valuations may imply caution.
Investors considering additional financing for stocks may find the history of the S&P 500 Total Return index useful, as good run performances, like six consecutive months of increase, often indicate potentially higher returns in the future, despite the potential risks posed by elevated valuations. On the other hand, making other financing decisions in the stock-market based solely on a long-term bull run may not guarantee consistent returns.
