When the S&P 500 reaches an all-time high, having spent at least a year below its prior peak, it’s performance going forward is significantly above-average, according to a study by Ari Wald, Technical Analyst at Oppenheimer.
Wald looked at the 13 occasions since 1950 when the S&P notched a new all-time high following at least a year below its prior peak, and over the next 12 months the S&P averaged a 14% gain and traded higher 92% of the time (up 12 out of 13 times) versus an average 8% gain and 68% positive hit-rate for any 12-month period. See Chart.
Wald points out that a rally above the May 2015 peak at 2134 is needed to register the next all-time high. He also notes similarities between current conditions and cyclical corrections in 1984 and 1994 due to the Fed tightening cycle, reminding us that it’s usual for the S&P’s uptrend to moderate following the start of Fed tightening by means of a mid-cycle correction, but it’s unusual for the first hike to coincide with a major market top.