The S&P 500 is heading for returns of between 25% and 30% for 2013.
Exceptional? Not totally.
LPL Financial ‘s Jeff Kleintop has compiled the historic frequency of stock returns on the S&P 500 since 1927. It turns out that 25%-30% gains range is not terribly rare: there have been five other years that saw such gains. In fact, the gains range with the highest frequency on the S&P 500 is 15%-20%, with eleven years.
Okay, now what?
Kleintop also circled the five years that followed the 25%-30% gains years — and the average returns for those periods comes to 12%, with four of the five years posting double-digit gains.
“Some may fear an outsized gain in the stock market during 2013, is surely to be punished with losses in the coming year. However, historically after a one-year total return in the 25–30% range, the S&P 500 has followed it up by more solid years of gains. …In fact, most of the years were actually followed by several years of strong gains, as was the case in 1943, 2003, and 2009.”
All of this may sound counterintuititive, especially when financial advisors are out there telling clients to expect average annual returns of around 10%.
But keep in mind, those are just average.
Kleintop tweeted about this today:
— Jeffrey Kleintop (@JeffreyKleintop) December 23, 2013
In other words, strong gains in stocks are usually followed by…strong gains in stocks.
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