U.S. Stock Market Busts Through The Weakest Six-Month Period

On Wall Street, it's sometimes possible to see a rainbow—and maybe even find a pot of gold—without having to suffer through a downpour first.

That's the happy spin on the historical record of stock performance in years when the market prances unscathed through typically tough months of the year. Rather than "pulling forward" gains from the future, markets that do well when they're "supposed to" suffer tend to remain buoyant for a while longer.

Tuesday marks the end of a couple of reputedly hostile, partly concurrent periods for equities: The weakest six months encompassing the hackneyed "Sell in May" routine, and the late summer-early autumn months when risk has often swamped reward.

Yet the S&P 500 is up better than 7 percent since April 30, far better than the 2.2 percent average for the May-through-October span since 1950. And the market made it through the typically weak and choppy August-October period with a sure-footed, low-volatility climb to record highs, with the S&P 500 rising more than 4 percent since July 31—more than half of that gain coming in October.

Market strategist Ryan Detrick of LPL Financial looked at all 23 years since 1950 when the index gained 5 percent or more from May through October and the forward returns were better than average. For November and December of those years, the S&P gained an additional 3.4 percent on average with 78 percent of all years positive. In the subsequent six months, the index added an average of 9.2 percent, with gains in 87 percent of those years.

It should go without saying that nothing is guaranteed by these broad tendencies gleaned from the archives. In fact, the last time the market had a similarly strong May-to-October run, in 2014, the subsequent returns were weaker than the November-to-April average. 

And someone who bought the S&P 500 on Halloween 2014 after that nice six-month rally was sitting on a loss as long as 16 months later, after the early-2016 correction.

Something will cause the current market's record streak without at least a 3 percent dip to end. The tape has shown some fatigue lately, with the average stock lagging the big-cap indexes and more than a fifth of S&P 500 stocks down more than 5 percent in October even with the benchmark virtually at a record high.

Still, it remains unlikely that the first gut check for this market in a year will prove to be a decisive market peak. And "the past six months have been too strong" is not among the better reasons to turn bearish now, at least for those who follow the Wall Street data trail.