I just had an interesting conversation with Mike Panzner, Director of Institutional Sales Trading at Rabo Securities. Mike is a quant who has an interesting take on the markets.
Assuming the S&P 500 index finishes about where the markets are at the moment (i.e., 1263), that means they would be up ~4% for the year. In 2004, the SPX was up ~8.99%, and 2003, the SPX was up 26.38%.
This would mark the third leg of a 3-year winning
streak, with a median annual return of +8.99%. Over the past 50
years, there have been:
· four 2-year streaks
· five 3-year streaks
· one 5-year
· one 8-year streak
Streaks longer than 4 years are relatively unusual.
In fact, there were only two out of eleven occasions when the span of winning or losing years exceeded three consecutive winners over the past five decades. One of those two periods were during the late-1990s bubble years (1995-1999 ); the other was from the
beginning of the secular bull market that began in 1982 (1982-1989); Even 1987, the year of the crash was up 2.03%.
Under the circumstances,
that implies pretty good odds that 2006 is less than likely to be an up year, just based uon historical averages. Furthermore, on the
seven (out of nine) occasions when the market has had a 2 or 3-year winning
streak, the median return in the following year has been -11.36%.
the Business Week poll, the median return for the S&P
500 that analysts expect in 2006 — assuming we close this
month at 1260 — is +8.53%.
If history is any guide, it would seem that
most analysts are doing some wishful thinking, and less historical
I will revisit this data with Mike after the year closes . . .