The S&P 500 Went More Than 50 Trading Days Without a 1% Drop. That Streak Just Ended. What's Next?

The S&P 500 (SNPINDEX:^GSPC) had been unusually calm until this week. Through the close on Tuesday, Oct. 13, the index had gone 53 straight trading days without a daily drop of 1% or more. The last one was on July 29, when it lost around 1.5%. Then on Wednesday, it fell about 1.1% to around 7,719, ending the streak.

That's a big shift from earlier this year, when the index posted 18 of those 1% down days from January through July 29, by my count. And it's gained through the quiet stretch, closing at around 7,805 on Tuesday, a little under its record close of about 7,819 on Oct. 6.

A quiet stretch that ends near a record can make investors nervous. But the index has seen dozens of runs like this one since 1950, and its record after them arguably looks a lot like its record after any other day.

Image source: Getty Images.

Calm streaks aren't rare

By my count, 55 streaks since 1950, including this one, have hit 50 sessions without a 1% drop, and several went past 100 sessions. The latest of those lasted 112 sessions and ended in January 2018.

But how often they happen changes a lot from year to year. The index has averaged around 25 daily drops of 1% or more a year since 1950. It had 63 in 2022 and just four in 2017. And 2026, of course, has already had both types of stretch.

What happened a year later?

I used the S&P 500's daily closing prices since 1950, leaving out dividends. A 1% drop meant a close at least 1% under the previous day's close.

For every streak, I started the clock on the day it hit 50 sessions and checked the index 252 trading sessions later, or around a year. That way, each streak counts once, no matter how long it lasted.

Of the 54 past streaks, the index ended that year up in 40, or 74% of the time. Its average gain was around 8%. In the same period, the S&P 500 was up a year after any trading day about 75% of the time, with an average gain of about 9%.

In other words, the calm streaks did about as well as a random day. Knowing the market had gone 50 sessions without a 1% drop wouldn't have shifted the odds of a higher index a year out in any useful way.

The 14 misses bunched up, too, with 11 of them falling between 1952 and 1969. Since 1978, 23 of 24 streaks were followed by a higher index a year later. But the whole market has done better since then. Since 1978, the S&P 500 has been up a year after around 80% of all trading days.

The next month, though, was a little weaker than normal. A month (21 sessions) after a streak hit 50, the index was up in just 26 of 54 cases, against around 62% of all days. A month is a short and noisy window, so part of that gap might be chance. Yet it suggests a calm spell hasn't reliably carried right into more gains.

Calm can end suddenly

Calm also doesn't mean the next drop will be small. The streak that hit 50 sessions in early September 2018 ended on Oct. 10, when the S&P 500 fell 3.3% in a sell-off led by tech stocks. By late December, the index had closed almost 20% under its September record close.

What's more, the streak that reached 50 sessions in December 2019 ended in late January 2020. Weeks later, the index tumbled almost 34% from Feb. 19 to March 23.

But a year after each of those streaks hit the 50-session mark, the S&P 500 was up -- by around 3% in the 2018 case and about 17% in the 2019 case.

Of course, over a full year, what's arguably counted more is how much the index's companies earn and what investors are willing to pay for those earnings.

So, is the end of this streak a warning?

Maybe not. Since 1950, the year after a 50-session calm has looked much like the year after any other day, with the index up about three times in four.

For anyone who holds an S&P 500 fund, I don't see a reason to change course over it. The calm isn't a reason to buy more, either, since it doesn't make the index's valuation any cheaper.

Sure, the drop that ended this streak could turn into a bigger one, like 2018's. But the index has seen drops like that with or without a quiet stretch ahead of them.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.