History seems to support the idea that 2014 will be less historic than 2013. Since 1927, there have been 23 years in which the S&P 500 has risen 20% or more, according to Birinyi Associates. It averaged a further gain of 6.4% in the next year. That is only slightly better than the 5.5% gain the S&P averaged for all years since 1927.
On only one of those 23 occasions of 20%-plus annual gains did the S&P improve its performance in the following year. In 1997 it rose 31% after a 20% gain in 1996. It rose again in 1998, by 27%, and in 1999, by 20%. Those were the days.
The S&P 500 has been known to decline in the year after a 20% gain. That has happened eight times. Six times it put in another 20% gain.
Data comparing the expansion of the S&P 500’s price/earnings ratio with past years, and comparing the performance at the current stage in the economic cycle, suggest gains of 6% to 9%.
It is possible that 2014 will be another year like 1997 and stocks will rise even faster than in 2013. Many in the market think the new Fed chairwoman, Janet Yellen, slated to take office Feb. 1 pending Senate confirmation, will delay withdrawing stimulus and fuel another big market year.
But before betting that 2014 will be better than 2013, investors might consider that it has happened once since 1927.
(Source: Wall Street Journal)
