To break down the data, we decile ranked annual price returns of the S&P 500 going back to 1950. At a high level, the chart shows that even years with double-digit gains often experience double-digit drawdowns. The table below compares annual price performance and maximum drawdowns for the S&P 500. While there is overwhelming technical evidence supporting the case for a sustainable bull market, expect some pullbacks along the way. We view the 200-dma as a worst-case scenario for a drawdown. We suspect the latter support range to be the most likely spot for a bounce given the confluence of support in this area, the degree of record-high cash sitting in money market assets, and the fact many investors missed the first half rally. In terms of downside, support for the S&P 500 sets up at 4,450 (June highs), 4,432 (50-dma), and near the 4,200-4,300 range (uptrend/prior highs). While overbought does not mean over, we suspect this could be a logical spot for a pause or a pullback in this rally, especially as the market enters a weak seasonal period. (For reference, bearish engulfing candlesticks are often found after upward price moves and suggest a shift to supply overwhelming demand.) At that time, the index was trading at around a 12% premium to its 200-day moving average (dma), marking over two standard deviations above average, while nearly 20% of index constituents were also overbought based on their Relative Strength Index (RSI). While this is hardly a drawdown by most standards, it is enough to raise the question of where potential support sets up if the selling pressure continues.Īs shown below, the S&P 500 began its pullback at 4,600 with a bearish engulfing candlestick on Thursday, July 27. ![]() The S&P 500 is down 2.6% month to date (as of August 10) after struggling to surpass the 4,600 area. ![]() credit rating, monetary policy uncertainty, stretched valuations, and underwhelming economic data in China have also weighed on risk appetite. Interest rate volatility spurred by Fitch’s downgrade of the U.S. Stocks have pulled back modestly this month as overbought conditions met overhead resistance. However, even with a drawdown, the S&P 500 has still historically generated positive average returns into year-end. History suggests a 5-10% drawdown between now and year-end is not uncommon, even during years with strong rallies into August.
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