This past year was a rough year for many traders, as the market chopped around for the majority of the year. For 2015, the S&P 500 Index closed down -0.73 percent not including dividends.
What I find interesting from the results below is that the average and median returns are higher after a down year, with the maximum drawdown (min) being lower as well. This is true since 1950, 1970, and 1990.
So what does this data imply, if anything, for the S&P 500 in 2016?
Well, history clearly suggests that the S&P 500 should outperform this year. Does that mean we are guaranteed to see double-digit returns? Of course not, nothing is absolute. As you can see in the chart below, negative years in 1973, 2000, and 2001 were followed by another negative year. Still, since 1950, when the S&P 500 closed down for the year, the following year closed positive 82.35 percent of the time (see below).
There is still plenty of time left in 2016. No one knows what will happen for sure. However, there is no denying there is a historical tendency for outperformance in the S&P 500 following a down year.
Let’s check back in another year and see how things play out. Thanks for reading.