This has been an exceptionally strong summer for stocks. What's next

This has been an exceptionally strong summer for the U.S. stock market. The S&P is now up 5 months in a row, which makes forward returns very bullish  (see study)

We can look at this from another angle. The S&P has increased >3% in July and >3% in August. This is rare. It has only happened 5 other times in history:

  1. August 2018 (current case)
  2. August 2009
  3. August 1994
  4. August 1987
  5. August 1970
  6. August 1951

As you can see, this only happens after bear markets, after “small corrections”, and before a “big correction” (1987 case).
Here’s what the S&P did next.

Click here to download the data in Excel
As you can see, the S&P’s forward returns were decent over the next year, with the exception of the 1987 case.
However, the 1987 case is unlikely to happen today. As those in the Membership Program know, the 1987 crash was very easy to predict. The circumstances that caused the 1987 crash do not exist today.
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2 comments add yours

  1. Troy, it just struck me that your idea of “go 2xbull S&P instead of 3x” has even more sense than mere peace of mind in the turbid last leg of bear market.
    In early February I was biting my nails not because “oh shit my investments tanked”, but rather “oh shit I don’t have ammunition to throw into this brilliant opportunity”. Had I thought better, I would swap “regular” (non-leveraged) ETFs and mutuals to 2-3x ETFs near the bottom, realizing moderate loss to replace it with more aggressive growth potential, keeping in mind that the bear has still long way to come. Therefore, keeping 2x ETFs would sweeten another small correction by swapping it to 3x on the exit from the correction…

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