Stocks have been on a tear since bottoming last Christmas Eve. The all-time high on the S&P 500 Index (SPX) now looms just overhead. A lot of market technicians see that as potential resistance. In other words, they believe there’s an increased chance of a pullback or at the very least a pause in the rally. This week I’m looking at prior instances of the S&P 500 testing all-time highs to see if the data supports their suspicions.
Methodology & Signals
To test this, I looked at the S&P 500 since the Great Depression. I considered times the index pulled back at least 20% from its previous all-time high. Then I considered it a signal when it gets back to the arbitrary level of within 1% of the high. The table below shows each of the signals -- the most recent one occurring just yesterday.
Typically, it seems to take a week or less for the all-time high to actually get breached. The last two times, however, it took considerably longer, as the index struggled when getting within striking distance of the previous high.
The Numbers for S&P Record Highs
The table below summarizes how the S&P 500 Index performs after each of those signals listed above. The returns over the next month are in line with typical market returns -- perhaps some slight underperformance. The longer term returns after these signals, however, look better than the anytime returns.
Three months and beyond after a signal, the index was higher after 10 of the 11 signals. Average returns are also higher after signals. Volatility, after these signals, is noticeably lower than usual. Based on the study, I don’t think there’s much to worry about as far as the S&P 500 running up toward its previous all-time high.