The S&P500 traded up to a fresh new all-time high (ATH) today at 2,496.77, eclipsing August 8th's all-time high at 2,490.87. We've traded up to a new ATH in 12 of the last 15 months, and every single month in 2017 except a sleepy inside month in April. We now have a calendar year that printed a new ATH in September, so naturally my curiosity got the best of me.
Plucking the 9 calendar years since 1970 where the S&P500 traded up to a new ATH during the month of September (regardless of whether or not September closed at an ATH) revealed very interesting data for the fourth quarter (Q4) of the calendar year. Since 1970, every calendar year where the index traded up to a new ATH in September then saw Q4's price only return for the S&P500 finish in the green (i.e. December's close was higher than September's close). Average and median returns are 5.63% and 5.39%. The minimum Q4 return is 1.22% (1989) and the maximum Q4 return is 9.92% (2013).
In terms of the path of returns during Q4, the average maximum Q4 drawdown relative to September's close is just -3.31%. In terms of monthly closing prices, September's close is actually lower than all of Q4's monthly closes in 6 of 9 samples (i.e. no calendar month in Q4 closed below September's close 6 of 9 samples). The 3 other samples that saw the S&P500 close a calendar month in Q4 below September's close did so by just -0.50%, -2.92%, and -2.51%. This occurred 1995, 1991, and 1989. In other words, the path of returns in Q4 for the S&P500 in calendar years where a new ATH was reached in September is void of any meaningful volatility. There are no "oopsies" or banana peels in the data set.
Should history repeat via a positive price only return in Q4 it will mark the 9th consecutive positive quarterly return for the S&P500 (assuming Q3 doesn't turn negative with a close below 2,423.41 on 9/29). This would match the 9 quarter winning streak from Q4 2012 through Q4 2015. The record for the longest quarterly winning streak for the S&P500 since 1970 is 14 from Q4 1994 through Q1 1998. Nobody, and I mean nobody, imagined that this is what our future would look like in the first quarter of 2016 - just like nobody today believes we can possibly ascend for 15 consecutive calendar quarters. The price of the S&P500 often trades beyond the limits of human imagination. The relentless, near linear, advance since February of 2016 is a perfect example.
As always, there is nothing consistently predictive we can glean from plucking 9 years since 1970 that have one particular variable in common with 2017. We can flip a quarter 9 times, and land on heads 9 times in a row. That doesn't mean we should bet the farm that the 10th coin toss will land on heads. The future is random, the price of the S&P500 will go wherever it wants to go. However, the price of the S&P500 is a derivative of the actions and behaviors of market participants, and right now market participants are eagerly and aggressively bidding the S&P500's constituents to the the north. This type of behavior doesn't generally turn on a dime.
"Strength begets strength" and unless this time is different, the behavior of market participants, as defined by the S&P500 establishing a new ATH in September, suggests there's more new ATH's on deck in Q4.