Equity traders charged out of the starting gate in 2012, racking up an impressive 9.5-percent gain in the S&P 500 (SPX) in the first two months of the year (Figure 1). Myriad bullish factors supported the gains, including the fact, as of early March, a number of “worst-case” scenarios had failed to play out — think Eurozone implosion, China hard landing, or a spike in oil prices.
But even by early-year bull standards, the market’s rally was rather remarkable. Until March, the major indices rallied relentlessly, with virtually nary a downturn. The S&P’s 1.54-percent loss on March 6 was the index’s largest in nearly three months (since Dec. 8), and the March 2-6 losing streak was its first three-day losing streak since mid-December.
Table 1 compares the performance of the S&P 500, Russell 2000 (RUT), Nasdaq 100 (NDX), and Dow Jones Industrial Average (DJIA) during the 49 trading days between Dec. 19, 2011 and March 1, 2012 to the indices’ performance in the roughly previous eight years (March 6, 2002 to Dec. 19, 2011). While the S&P closed higher from day to day 53.87 percent of the time on average before Dec. 19, 2011, over the next 49 days that probability jumped to 69.30 percent. The Nasdaq 100 — which outpaced the other U.S. indices during the run — closed higher 71.43 percent of the time.
Similarly, the S&P’s 0.01-percent average daily gain inflated to 0.27 percent; the Nasdaq 100’s grew from 0.03 percent to 0.36 percent. The S&P’s average 49-day change between March 6, 2002 and Dec. 19, 2011 was 0.53 percent; this average increased to 7 percent between Dec. 19, 2011 and March 1, 2012. The S&P’s 14-percent net gain off the Dec. 19, 2011 low put it in third place, behind the Nasdaq 100 (19.33 percent) and Russell 2000 (15.02 percent). Only the Dow (10.32 percent) gained less.