With everyone waiting for a pullback, and yesterday and today viewed as the probable start, perhaps its time to review some history. What has happened historically after markets have put in record setting quarters — 15%plus?
For the most part, momentum has trumped mean reversion historically. Jim Bianco crunched the numbers, and he found that “stocks returned an average of 1.33% over the month following one of these record quarters, 3.46% over the following quarter, and 9.95% over the following year.”
It is worth noting that these average returns following quarters of 15%+ performance are nothing out of the ordinary. The average monthly return over all periods in the DJIA since 1900 is 0.58%, the average quarterly return is 1.66%, and the average yearly return is 6.90%. If anything, the average returns following huge quarterly gains actually outpace the average returns during all periods.
Perhaps another way to look at it is these record setting rallies, especially following a a big selloffs, are themselves a form of mean reversion.
Here’s the tabel of past 15% quarters:
courtesy of Bianco Research
Originally published at The Big Picture and reproduced here with the author’s permission
55 Responses to “What Follows Record Setting Dow Quarters?”
Guest • October 3rd, 2009 at 2:45 am
What about Q2 2009, which was surely also a quarter when DJ outpaced a 15% criterion?Put enough of these together back to back and ypu’re probably looking at hyperinflation, given the near-zero cost of financing the increase.
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