Statistics for the optimistic

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Statistics for the optimistic.

The major stock market indices continue to set new records uninterrupted by significant pullbacks, an upward march fueled by optimism about President Donald Trump's economic plans. By February 24, for example, the S&P 500 Index had gone 93 consecutive trading sessions without a single-day decline of 1% or more, and the last multi-session fall of 10% or more on the S&P 500 ended over a year ago, on January 20, 2016.

While cautious investors see a significant correction looming, Goldman Sachs Group Inc. analysts, say that history shows the market may be poised for more big gains.

In its latest US Weekly Kickstart report, Goldman looked at the six most recent prior instances, from 1985 to 2006, when the S&P 500 went 80 or more trading days without a 1% daily decline. Their median length was 100 days, during which the S&P 500 posted a median return of 13%. Rather than significant corrections, these periods typically were followed by further gains, with median returns over the next 3 months, 6 months and 12 months of 4%, 9% and 15%, respectively.

Moreover, in only two instances were there declines over the succeeding three or six months, and these were 2% or less. In all six cases, there were gains over the next twelve months, ranging from 2% to 34%.

Of course we all know that past performance is no guarantee of future performance, and Goldman Sachs is not expecting a repeat of previous cycles. Indeed they forecast that the S&P 500 will be essentially flat for the rest of 2017.

The optimists might have a different view altogether.


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