Taking measure of the 2024 bull

06/18/24
  • So far, S&P 500 has had a relatively calm 2024
  • Biggest decline is smaller than historical avg.
  • Most of the market’s strongest years had larger pullbacks

By any measure, it’s been a good year for the US stock market, with the S&P 500 (SPX) pushing to multiple record highs and extending its current rally to nearly eight months.

Of course, there’s still more than half the year to go, which begs the question: How unusual is the market’s nearly pullback-free performance in 2024?

So far this year, the SPX’s maximum drawdown has been the 5.5% pullback from March 28 to April 18:1

Chart 1: S&P 500 (SPX), 1/2/24–6/13/24. Biggest pullback of the year.

Source: Power E*TRADE (For illustration purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)


One way to gauge whether this performance qualifies as “unusual” is to look at how the SPX has pulled back in other years—specifically, during some of its strongest years. The following table shows the biggest drawdowns that occurred in the 20 years with the largest SPX returns over the past four decades:

Chart 2: Maximum down moves in S&P 500’s 20-strongest years since 1985. Only three years have had smaller pullbacks

Source: Power E*TRADE (For illustration purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)


So, if 2024 ended today, the SPX’s 5.5% maximum drawdown would be smaller than only three others. Considering we’re not quite yet at the midpoint of 2024, a conservative trader or investor may conclude there’s a good chance the market will experience more volatility before the year ends.

That’s not meant to raise an alarm. The table’s primary message is that even the strongest years can suffer significant setbacks. Seventeen of the 20 years in the table experienced bigger pullbacks than anything we’ve seen so far in 2024, and all of them ended with double-digit returns.

Sharp sell-offs are a natural, recurring part of the market, although during strong rallies it may feel as if they’ve been banished from existence. Understanding that can help traders and investors avoid overreacting when the inevitable occurs.

Today’s numbers include (all times ET): Retail Sales (8:30 a.m.), Industrial Production and Capacity Utilization (9:15 a.m.).

Today’s earnings include: KB Home (KBH).

 

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1 All figures reflect S&P 500 (SPX) daily closing prices, 1985-2024. The drawdowns discussed had to begin and end within the same calendar year, and were calculated using daily closing prices, not intraday highs and lows. Supporting document available upon request.

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