Given 100 years of history, what are the odds of a stock market rally in 2019?

Wednesday, Dec 26 2018 by
Given 100 years of history what are the odds of a stock market rally in 2019

I hope everyone has had a wonderful Christmas break.  I’m away in Australia visiting my in-laws and being topsy turvy for a while has offered me a chance to gain some perspective on these difficult markets.  As is usually the case, my confidence is best found through number crunching.  So this Boxing Day I’ve run the gamut on the last 50 to 100 years of stock market history to develop a statistical model of stock market returns.  If you read, scan and ponder this piece you’ll have a far more rational understanding of the range of possible outcomes for 2019 and beyond.  :-)

The range of the study

I’ve gathered as much stock market history as I can get my hands on for both the UK and the US stock market.  I’m using 68 years of “FTSE All Share” data as the proxy for the UK, and 90 years of “S&P 500” data.  Now the more knowledgeable of you will realise that the FTSE All Share was initiated in 1962 and the S&P 500 in 1957… so these time series have been extended through some additional digging and data munging.  I apologise to anyone who is a purist, but from my perspective (as an armchair statistician), the more history the better.   We end up with a pair of annual time series as follows. (Please note these are capital gains only and do not include dividends). 5c238dbdd4e25Image_2018-12-27_at_1.18.31

The average stock market return

We aren’t comparing like with like (as the UK data set is a lot smaller), but equities tend to behave very similarly across both sides of the Atlantic.   The average annual return over the whole series is a healthy 7.5%, while the standard deviation of return is plus or minus 19% around this average.  For those who don’t remember their school maths, this means that it’s ‘standard’ that roughly 2 in every 3 years the stock market will return somewhere between +26% and -11.5%.   The FTSE All Share & S&P 500 are both down about 13% year to date… so they are just outside this standard range.   I think we all forget that stock markets can be quite volatile - but it’s par for the course!


How often is the stock market up, and how often is it down?

When stock markets go…

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47 Comments on this Article show/hide all

Gromley 27th Dec '18 28 of 47

In reply to post #430578

My fear of missing out is greater than my fear of losing out so I am buying as my preferred investments get cheaper.

acerskine - Great quote. I have no idea whether you are making the right or the wrong call in this market , but I think that is such an excellent summation of the dilemma that it was worth repeating.

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Gromley 27th Dec '18 29 of 47

In reply to post #430523

Thanks Nick,

I was certainly aware that Yahoo have the data, but no longer allow you to download it as a time-series (it used to be be downloadable as single stock data still is via yahoo).

I must confess that I haven't much played with "R" but perhaps I should if it provides access to other historical data.

I'm not sure though if I agree with your view that "There does seem to be an attempt to remove access to stock market data from the web."

It's certainly become harder to acquire it as 'plain data'.

You mentioned that Google finance have cease to provide historical data - in fact I think it is still available via "googlesheets" although that is a bit of a clunky interface.

Also as Graham Neary recently observed, MS Excel now provides "real time" stock data directly as a function, but as far as I have seen so far I don't think there is any historic data available at this time.

I even pay for a "premium" subscription to another site which should" in theory enable me to download historical at will, but that site is so poor as to be virtually unusable

I find it very frustrating given that the data in question is "public domain" in real time.

If I read correctly I believe that Stocko rejected price data downloads as an augment because it would be too costly - I don't really understand this and it leads me perhaps to becoming a niche data provider.

In the meantime at least I am comforted that it is not just me finding it hard to acquire this data.

(Thanks also PhilH for the reference to Alphavantage - I will look into this too)

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grout123 27th Dec '18 30 of 47

Ed. Nice one.
Since my first market quake in 1987, I have invested through a number of market selloff's and I would never pretend to be better equipped to navigate the markets that any person or model but the old adage buy low and sell high always springs to mind. Technical analysis helps me time things and i have started to buy at these somewhat depressed levels. Brexit and Trump and tariffs and any other 'reason' the market cares to throw out as reasons for volatility actually don't matter. Its jusst noise. What does matter is being able to buy quality at depressed levels when the opportunity arises. Check out the chart from 1987 to today and you will have wished you had never sold a single stock, other than the crap ones ;-)

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cig 28th Dec '18 31 of 47

For a proper market crash (in peacetime), you need asset classes stock sellers can switch to...

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brucepackard 28th Dec '18 32 of 47

Good article to counter all the bearishness at the moment. BUT you should be careful of the "risk of ruin" with mean reverting strategies. "Buying the dips" does work most of the time. But if there is a (say) 1/5 of a second down year, and an even smaller probability of 3 down years in a row, nevertheless you want to make sure that this (or any other) unlikely event can NEVER blow you up.

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Vrod 28th Dec '18 33 of 47

WB Mantra. "Buy off a fearful man and sell to a greedy man".

In the past I have found that when it pained me to make purchases which in 30 seconds felt bad timing and wrong, the purchased developed into my best investments.

When constructing a portfolio in the UK you can secure an income circa 4.5% to 6% from leading companies. The issue is what happens in a sustained bear (market fall).

In 1973 in December I recalled a stockbroker famiy friend told me one of his major clients totally sold out at that time. a week into 1974, Burmah Oil had to be restructured, and within a month the market doubled from a low of circa 147 vs a high of 2 years earlier of circa 521. In December 1973 Nat West shares were below thier par value which prevented them from raising funds via a rights issue. During that testing period the leading shares maintained or increased dividends.

A question - how will the average investor react if the stock market fell 50% from the recent high, bearing in mind in real terms the market is no higher than in 2000. Is that when we would see the 'fear' with investors dumping shares and exiting the market?

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HumourMe 29th Dec '18 34 of 47

In reply to post #430488

One thing though that this brings to mind is that to pick calendar years is somewhat arbitrary (although because so many people look at them they must have some bearing on market sentiment). I wonder how far the results might differ if one were to analyse based on July to June years or some other mix?  Probably not too profoundly different I would expect, but there may be some differences?

I've been thinking about this aspect and playing around with perspective. If you ignore calendar years then the obvious question you asked is what period? Is point and figure (which ignores time completely except as an axis label) the answer? Here is the Stocko PnF chart for the all-share (using the defaults):


What this shows is that trends progress (as we all know) in a series of reversals. Playing around with the reversal criteria adds little further insight.

However in PnF terms we are bearish as support has been undercut.

Personally, in more contemporary terms, I'm reluctant to invest while the 50 day (or 10 week) simple moving average for the index, points south. For a share there are different technical criteria. This reflects the different behavior of an index, based on a collection of average sentiment, versus a specific share, that Nick Ray alluded to above.


Soon as the 50 day/10 week moving average turns up I'll be entering cautiously on buy-stop orders. Currently sitting on my hands and waiting ...

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iwright7 30th Dec '18 35 of 47


Another excellent article. I am reminded of one of Buffett's comments back in 2001: I never have the faintest idea what the stock market is going to do in the next 6 months, or the next year, or the next two. But I think it is very easy to see what  is likely to happen over the long term.

I am personally sitting on  roughly half cash and half high quality stocks - This way I should only be 50% wrong.

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daverawc 31st Dec '18 36 of 47

As Stan Druckenmiller said in a recent podcast the thing that drives markets up and down is not earnings it's liquidity.
I think you will get a clearer picture if you relate the up and down years to interest rates and money supply expanding and contracting

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gary196 1st Jan 37 of 47

Not sure that 68 years of FTSE All Share and 90 years of S&P 500 is statistically significant or representative of the "long-term" due to sector rotation within the indices as well as the duration of debt and technological 'supercycles'. For example if you look at the Nikkei for the past c.50 years it would give you a lot more down years!

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wilkonz 1st Jan 38 of 47

Many thanks Ed. I found that a helpful way of looking at things. At present my portfolio is 70% cash with the rest invested in top USA companies. I'm tempted to start buying things that look cheap, but I met a retired banker the other day who advised caution - his argument was that French and German banks were heavily invested in Greek bonds, which in his opinion are 'junk bonds'. If he is correct, we might see a European banking crisis similar to the sub-prime mortgage disaster that destroyed Lehman Brothers and led to a worldwide recession. Does anyone have any views on this?

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stanislawski 3rd Jan 39 of 47

In reply to post #431328

Varoufakis, despite being a federalist and socialist, has an excellent speech about the Euro to the Oxford Union which you can see on YouTube. He rightly describes the Euro as "designed with malice". It is a time bomb but calling the explosion is impossible in my view. 

 Over the past 2 years I have had stockopedia for the UK, USA and Europe. The quality and performance of stocks and the Anglosphere just seems to be so much better. I wonder if this is a faint echo of underlying problems and imbalances in the eurozone.

Any major problem in the eurozone will hit everyone because it is simply the biggest economy in the world but taking a long view I am remaining invested in UK and USA shares which have healthy and quality dividends and will go back to growth stocks when the market is recovering. The results of Ed's analysis today have reassured me that this is a reasonable strategy. 

All hail Stockopedia!

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threeputt 3rd Jan 40 of 47

Very interesting study thanks, my own very simplistic view however is that statistically we are overdue a bear market. For that reason I am about 30% cash in preparedness, notwithstanding 'time in the market' not 'time in the market'

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threeputt 3rd Jan 41 of 47

In reply to post #430643

In that case I'm relieved I have FTSE 100 historical data downloaded on a spreadsheet. I managed to download the most recent year from Google recenty (can't confirm but I got it from someehere), I also use Google sheets on a daily basis for my stock watchlist, hope they keep that going as I find it invaluable

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HumourMe 5th Jan 42 of 47

I think the odds favor a rally. Eventually. There I've made a forecast but not committed to a timescale. Now I know I'll be right. Eventually.

Below is a boxplot of the draw downs below a rolling 52 week high for the ASX since 1980.

All 'outliers' are 'darkred' and to the right.

The median value is the vertical black line. 50% of values are above that, 50% below. 50% of all the data lies in the box region (the height of the box is not relevant), 25% in the left region, 25% in the right region).

The green line is where we were on Thursday. 


The 'outliers' make it clear that we could go a lot lower. The gap between the 52 week high and the close can be reduced by either the close approaching the high (the usual case) or the high falling (by definition it takes at least a year, occurring, by visual inspection, approx 7 times since 1980).

The outliers are scary but if we see them and evidence of a reversal it is boot filling time (I'm still seeking evidence or even hints as to the nature of the evidence).

Here is an alternate view:

It is clear that the majority of the time is spent much closer to the high than where we are now, but also that there is precedence for even lower.

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ramonvasquez 6th Jan 43 of 47

Hello Everyone ...
Currently , l am very bearish on account of my experience of having missed every crash since well before the 1987 one , which is to say that l sold out every part of my portfolio except those in the very bluest of blue chips category .
However , l also mainly missed out on the bull run 2009 ~ 2017 ! In 2018 , l took the opportunity to cost-down and thus up-yield the stocks that remain .

My thanks to Ed for all the stats he puts out so generously . A Great Job !

Best wishes , and good luck . Ramon .

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ramonvasquez 6th Jan 44 of 47

By the way , according to the Tom Dorsey P n F system , we are  now into a Best Buy Zone . Cheers , Ramon .

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mmarkkj777 6th Jan 45 of 47

Well, its a difficult one to call. I have to be honest and say I do not have a Scooby Doo what the market will do.

I'm now 80% cash, but I'm bullish with the 20% that I'm invested (up from 5% before Xmas), if that makes any sense.

Is it possible to be a micro bull, but a macro bear? Here's hoping the market continues to recover (but I realise in its current volatile state it could plummet to even lower levels than late 2018).

I'm dipping my toes, but staying cautious.

I can't call the market, so I.m going to try to run with it, without over-reacting or over-committing.

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JohnEustace 6th Jan 46 of 47

In reply to post #431328

To quote Jeffrey Gundlach's December tweet "Keep an eye on Deutsche Bank, that is one sick puppy".
Add in all the raids on their offices by the authorities and the fact that they were the main backers for Trump's property developments and I'm not sure they can recover their reputation.
I agree with Varoufakis that the Greek so-called bail outs were in fact rescue attempts for the German banks.

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sgs71 11th Jan 47 of 47

In reply to post #431328

This article by Patrick Jenkins (FT) is relevant to your comment regarding the strength (or otherwise of European banks)

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