- Rose the next quarter every time with an average gain of 8%
- Was higher one year later, nine out of 10 times; the one period that it failed to gain included the 1987 stock market crash
This study also included three periods—1970, 1998, and 2009—where strong quarterly returns were preceded by a quarter that was down more than 10%, as was the case in the first quarter of 2020.
Notably, strong quarterly returns also occurred in the early stages of the bull markets that began in 1974, 1982, 2002 and 2009.
History is only a guide. We do not expect markets to track the past exactly. As Warren Buffett said, if past history was all that is needed to play the game of money, the richest people would be librarians. This seems to be especially pertinent today given the great uncertainty surrounding the pandemic and wider-than-normal potential outcomes.
That said, the weight of the evidence in our work still suggests that we are in a bull market—a bull market that has further to go but became stretched to the upside on a short-term basis in early June. Markets started to bake in a very smooth economic reopening process. We continue to expect it to be an uneven process, albeit with a positive trajectory.
The good news is through this digestion period, markets are working off some of the excesses that had built up, and elevated expectations are being reset. While the fits and starts in the economy and other factors will likely lead to periodic market setbacks, our work suggests this bull market continues to earn the benefit of the doubt, and we retain a positive 12-month outlook.
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