What Does a 20% Gain Mean?

Yesterday, the S&P 500 Index price return surpassed 20% for the year, which could be the first 20% gain since 29.6% in 2013. What does that mean, other than the obvious answer that stocks had a great year? Per Ryan Detrick, Senior Market Strategist, “One might think the year after a 20% gain tends to be weak, as the big gains are digested. But, the year after a 20% gain actually tends to be stronger than the average year.”

Since 1950 there have been 18 years that saw a 20% gain, and incredibly the next year was higher 16 times (83.3%) with an average return of 11.2%.* Compare that with the overall average year seeing the S&P 500 up 8.9% with positive returns 71.6% of the time, and it is clear that banking on weakness the year after a 20% gain may not be the best plan.

So how rare is a 20% gain? Turns out they aren’t all that uncommon, as over the past 67 years (since 1950) there have been 18 years that finished up at least 20% (26.9% of the time). Considering that 19 years during the same period saw negative returns, you could argue the likelihood of a single year finishing in the red is nearly the same as a year finishing up 20%.

As it turns out, big returns aren’t quite as unusual as they might seem, and history would say a 20% gain in 2017 would only add to the odds that the bull market continues in 2018.


* Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of its predecessor index, the S&P 90.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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