The S&P 500 is up 5 months straight — and history favors momentum

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Since October, stocks have climbed the wall of worry and closed each month in the green — brushing aside concerns over inflation, recession, corporate earnings, Fed hiking, Fed easing, and the like. Barring disaster, Friday’s settlement will extend this winning streak to five months.

Over this brief period, the S&P 500 has rocketed 25% higher, leading reasonable investors to question if the market has moved too far too quickly.

History answers resoundingly once again for those who would question the trending potential of the US stock market: Strength begets strength.

Since 1950, there have been 30 five-month streaks in the S&P 500, including the most recent one, along with another streak that ended last July. In all but two of the prior 28 cases, the S&P 500 was higher 12 months later, with an average gain of 12.5% and a 93% win rate. This compares to a 9.0% average one-year return with a 74% win rate.

The bullish advantage decreases over shorter time frames, but critically, it doesn’t disappear.

Looking one month out following a five-month streak, the average historical return is 1.0% with a 76% win rate — versus a 0.7% average gain and 61% win rate over all one-month periods in the last 74 years.

And, as we’ve been writing, gains are increasingly broad-based, with the rally extending beyond anything tangentially related to artificial intelligence.

Investors might be surprised to learn that over the last five months, the financial sector is the best-performing large-cap sector, up 28%.

Tech is close behind with a 27% return, followed closely by industrials, up 26%. Notwithstanding the barrage of AI headlines, large-cap industrials have notched 27 record closing highs over the last five months versus tech’s 25 all-time records.

Throw in the materials, communications, and consumer discretionary sectors, and fully six of the 11 S&P 500 sectors are up 20% or more over five months.

Our large-cap discussion here doesn’t even touch on the risk-on tilt being felt elsewhere in the markets — from crypto to disruption stocks to IPOs.

Less than one week after its initial public offering, Reddit (RDDT) has nearly doubled in price — up 91.5%. That’s not nothing either.

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