Winning Streaks:Why You Should Pay Attention

Winning Streaks:Why You Should Pay Attention

The current rally in U.S. equities is quite extraordinary.

New all-time highs, falling volatility and broad sector participation are just a few of the characteristics of the rally that started in November 2016 and continues today. The current momentum is especially interesting considering it was born in the backdrop of a highly-contested U.S. election, and endured a December 2016 interest rate hike by the U.S. Federal Reserve, just the second such rate hike in 10 years.

After such a record move, many investors are wondering if we gone too far too fast. Maybe. But maybe not.  The S&P 500 Index is exhibiting a rare bullish behavior seen only 4 times since 1985. And its something few analysts are talking about. This market behavior was seen multiple times in the 1990’s Bull Market era, but observed just once in the 1980’s and 2000’s.

When Equities Go Streaking.

The S&P 500 is on a streak of 89 consecutive days without a 1% daily decline, advancing 10.04% with 17 new closing all-time highs. (as of 2/17/2017) The last time the S&P 500 fell more than 1% on a single day was October 11, 2016 when it declined (1.24%). The table below presents the previous 4 streaks without a 1% down day since 1985.

S&P 500 Correction and Rallies Streak Without a 1% Decline
S&P 500 Index: 
1985 – current

1/3/85 6/12/85 13.45% 112 -1.98% 1 5.57% 23
10/12/92 2/12/93 10.41% 87 -2.85% 3 11.10% 244
12/9/94 5/17/95 18.30% 110 -1.50% 2 19.45% 139
7/14/06 11/24/06 12.77% 94 -1.36% 1 5.50% 57

Source: Bloomberg L.P., Anchor Capital Management Group, Inc.

One would think these kinds of streaks in momentum might be an indication of market tops, leading to prolonged corrections or at least multiple weeks of sideways congestion. What’s remarkable is that on average, these streaks are interrupted with just 1 or 2 day corrections before advancing further. In the case of the 1985 and 2006, further gains were muted. Streaks that began in 1992 and 1994 led to prolonged rallies, where even more streaks were observed.

Understanding the character of price trends is a key ingredient to how we approach risk management. Bear Markets are characterized by large single day moves, daily reversals and high volatility. Bull Markets on the other hand are characterized by persistently positive days, positive momentum, and low volatility.

There is no doubt that the current streak in the S&P 500 Index is a highly bullish event and Anchor Capital Tactical Equity strategies have benefited. The real question however is what happens after the inevitable end to the streak. Are we on the brink of a multi-month 1990’s style Bull market? Or will the subsequent rally be short lived, an opportunity to reduce exposure? Either way Anchor Capital portfolios are prepared.

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