Earlier this week, the S&P 500 closed at a new all-time high for the first time since May 21, 2015. That came out to 285 trading days without a new high, or just over 14 months. The big question now is: What does this mean? Well, for starters, this was the 1,027 new all-time high since September 1954. Remember, the S&P 500 peaked in September 1929 and it took 25 years to finally close above that peak, which is why we started counting at September 1954. Since this recent bull market started in 2009, there have now been 110 new all-time highs. There were 45 in 2013, 53 in 2014, 10 last year, and 2 so far this year.
But what does it mean going forward? Many have noted valid concerns about buying at such a high altitude, but the truth is future returns may look rather strong—and here’s why. Going back to 1950, we found there were 13 other times the S&P 500 went at least one full calendar year without a new all-time high. Well, the good news is, after the eventual new high was made, the returns going out a year were better than the average return. In fact, going out six months and a full year shows very strong returns, up 7.3% and 14.0%, respectively, on average. A year later, the S&P 500 has been higher 12 out of 13 times, with only the May 2007 new high lower a year later.
Looking again at the table above, the previous two times the S&P 500 went just over a year before making a new high were January 1985 and February 1995. Each of those signals produced very strong returns over the next year. Could this be a subtle clue, and could history repeat? For more of our views on what could happen the second half of the year, be sure to read our just released Midyear Outlook 2016: A Vote of Confidence publication.