Do you think this is it? The market is finally turning over for good, right?
I fielded those questions dozens of times in Las Vegas last week. I was there for our annual Stansberry Conference. And fear was in the air. But that’s not surprising…
[ad#Google Adsense 336×280-IA]You see, the boring summer we had in the markets came to an end on September 9.
The S&P 500 fell 2.5% that day. It was the worst day for stocks in four months.
And it ended a streak of 50-plus days in which stocks hadn’t lost 1% or more.
I know that scared many investors. But today, I’ll show that this is actually a good thing for stock prices.
In fact, gains of 15% over the next year are possible, based on history.
Let me explain…
Volatility is normal for markets.
Things go up and things go down. It’s rare for U.S. stocks to spend a couple of months without a major daily loss. But that’s exactly what happened recently.
From June 28 to September 8, the S&P 500 never had a daily loss of 1% or higher. That’s a rare streak. But it ended when stocks fell hard on September 9.
Most folks would hear that and be scared…
Things used to be calm… But now they’re hectic… I need to sell!
However, the typical reaction here is not the right one. Stocks have a history of moving much higher after similar ends to low volatility.
The most recent occurrence was actually in June of this year… And the S&P 500 is already up 6.5% since then.
We’ve seen this same situation 16 other times going back to 1985. Stocks were higher a year later in all 16 examples… Not once did they lose money.
Not only did stocks make money… they made a lot of money.
These volatility spikes led to big outperformances over the next year. The table below shows the returns…
The S&P 500 has had 8.2% annualized gains, on average, since 1985. But buying after these volatility spikes led to much better returns over the same period… gains of 6.6% over six months and 14.5% over the next year.
Those are major outperformances compared with the typical return on stocks.
This is certainly surprising. After all, you would expect stocks to fall when a period of extremely low volatility ends… But the opposite tends to occur.
Stocks just had their first 1% loss in more than 50 days. That’s a rare event… But it’s also a good thing for stocks.
History says double-digit gains are possible over the next year. And that means we want to stay long stocks today.
Good investing,
Brett Eversole
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Source: Daily Wealth