by Denise Chisholm, Director of Quantitative Market Strategy, Fidelity Investments
The S&P 500 is up nearly 25% in just 16 weeks. That kind of move is rare – only a handful times in history has the market rallied this sharply over that short a span. And in each of those instances historically, the market was higher again one year later. That’s a fun stat. But not the interesting part. What’s more compelling is the deeper pattern in the data: the bigger the rally, the better the forward returns. Statistically speaking, each percentile jump should tilt investors toward considering what could go right.
If you think we’ve come too far, too fast, history suggests the opposite. These kinds of thrusts don’t happen randomly – they tend to follow periods of below-average returns. And believe it or not, we just had one given the ‘almost bear’ decline in April. In other words, this kind of momentum is often a catch-up trade, not a sign of irrational exuberance.
There’s another overlooked truth: markets often get it right. Big moves like this tend to happen before the outlook improves — not after. That’s why phrases like “new highs are bullish” or “don’t fight the tape” have staying power. Markets don’t wait for good headlines. They anticipate better conditions ahead. And the data backs it up.
When stocks rally this sharply, recession probabilities typically fall. The New York Fed’s model — which uses the yield curve to estimate recession odds — has historically shown declining risk in the year following one of these powerful surges. Put simply: the market sees the turn before the data does. And if the market is a message, this one is pointing away from recession, not toward it. In the context of a secular bull market, that’s a message worth hearing.
This information is provided for educational purposes only and is not a recommendation or an offer or solicitation to buy or sell any security or for any investment advisory service. The views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Opinions discussed are those of the individual contributor, are subject to change, and do not necessarily represent the views of Fidelity. Fidelity does not assume any duty to update any of the information.
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