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Here’s Why History Favors Another Good Year for Stocks in 2014

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You’ve likely heard it a millions times. That history is only a guide and not a guarantee. And yet, who among us can resist looking backwards to try and gauge what the future might hold?

I know I sure can’t, which is why when I see things that say there’s a 66% chance the S&P 500 (^GSPC) will be up again next year, I get interested.

As MKM Partners chief market technician Jonathan Krinsky reveals in the attached video, this high probability of an encore, albeit lesser, performance next year is just one of the things that happens when the market books a rare 25% gain, as it has so far this year.

“What is unusual is that this year we’re following 2012 which was up 13%,” Krinsky says, noting that of the sixteen times the market has delivered that degree of upside since 1928, ”only four them followed a year that was up 13% or more.”

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Source: MKM Partners


So right there, assuming we don’t implode in the next four weeks, 2013 falls into an even more exclusive club.

Krinsky also points out that, more often than not, these type of outsized years tend to spill over into the following year, writing that “Overall, following an up 25% year, the following year is higher 66% of the time, for an average move of +5.47%.

Sure 5.5% is a far cry from 25%, but it’s not a crash either, and that alone should be comforting in a jittery environment like we are in currently. In fact, in the four instances that 25% up-years followed years that were up 13% or more, Krinsky says the aftermath is less clear, since twice it resulted in big losses and twice it end up in big gains.

For his money, Krinksy thinks the latter looks to be the better bet right now.

“If we look at the technicals, and the market internals right now, there’s really nothing to suggest that we’re going to see a horrible year (in 2014),” Krinsky says.  “The breadth is good. The trends are good. The momentum is good and sector leadership is good. That all bodes well for (another) outsized year as opposed to a major downside move.”

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