By Salil Mehta, statistician
NEW YORK (
) -- On July 22, the
(e.g., the SPY ETF return as a proxy) closed at another record high, its 47th of the year.
We may find ourselves in the familiar territory of asking where the markets will go now, just as we may have asked after the 46 record closes that preceded it. Will we extend to another record close? Or will we retrench?
We can look for clues in similar periods, when investors and policy officials were asking similar questions.
The main reference for the government and central bankers is the period leading up to the Great Depression. That secular bull market ended in August 1929, just before most of the effects of the Great Depression, and it took 25 years for the market to recover, even longer in Europe, with World War II intervening.
While that duration of the global market recovery was lengthier versus today, the pronouncement of market choppiness and unsettled investor sentiment is exactly the same.
During that time, bouts of volatility were commonplace in multi-year increments, similar to what we have in recent years. And each bout in volatility led to a lower high and a lower low. And it continued over and over. Until it didn't.
Doesn't this sound similar to what we've had in this market recovery? Even more similar was the investor sentiment that reaching new highs in the financial markets was to be treated with even greater suspicion, as there was no global precedent for a faster recovery.
Let's look also at other periods of inflection in the
history to gauge where we are.
These periods are not necessarily bull market peaks, but simply record-creating rallies where the underlying market sentiment was similar to what we have today, for example, 1964 or 1996.
We can examine a broad set of market statistics for these market periods in the history of the S&P 500 and compare data for about nearly a year's worth of trading data leading up to the event shown in the following table.