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Data reveal stocks won't crash in 2020 after an insane 25% gain in 2019

Brian Sozzi
Editor-at-Large

The historical data show more gains are ahead for investors in 2020, but by no means should risk takers expect 25%-plus returns as seen in 2019.

The S&P 500 has notched an impressive 23% gain this year. Some big-name, high-beta stocks such as Apple have noticeably outperformed the benchmarks — the tech giant’s stock is up 67% year-to-date. Not too shabby considering the topsy turvy daily headlines on the U.S.-China trade war and a deceleration in corporate earnings growth, among other well-worn negatives.

Research from DataTrek holds this year’s rally in the S&P 500 in even higher regard. The S&P 500’s return is close to double the last decade’s mean return of 13.5%. If one were to assume the markets closed today to end 2019, DataTrek reasons the S&P 500’s performance would be the best in six years (2013 saw a 32.2% pop).

But another 25% increase in the S&P 500 is very unlikely, for at least several reasons.

NYSE Group President Tom Farley, center, stands among traders on the trading floor, Wednesday, Aug. 5, 2015. (AP Photo/Richard Drew)

One, there is no trade deal between the U.S. and China and that continues to suppress capital investment. Secondarily, the Federal Reserve has strongly signaled it’s done with slashing interest rates after three cuts in 2019. That will remove a major stimulus the market has enjoyed this year. And lastly, the presidential election will be in full swing and with it, a dizzying amount of volatility inducing headlines for investors to digest.

S&P 500 still has room to grow

The historical data does show, however, that the S&P 500 could have further room to run. DataTrek notes that from 1928 to 2018, the average total return for the S&P 500 in the year after a 25% or more gain is a respectable 9.4%. Meanwhile, all but one of the very bad years for the markets in the past nine decades came after 25% gain years (1937).

“This year’s rally and recent new highs are grounded in the belief of better financial and economic conditions in 2020. Those may not work out quite as well as markets expect, and history says Year 2 returns often fail to follow on strongly after a big Year 1 rally. But it is comfortingly rare for markets to get it entirely wrong,” says DataTrek co-founder Nicholas Colas.

So, keep on winning in this bull market. But, don’t be a greedy fat pig — the data suggests that would be a wise course of action.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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