Research.LeutholdGroup

The S&P 500 continued its surge following the tariff scare—up 25% from the close on April 8th through the end of June. Based on history from 1957 to date, the index’s potential downside to median levels has deepened to -43% (vs. -41% as of May 31st). 

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The S&P 500 is back within spitting distance of its all-time high, and, as one would guess, our downside calculations are stretched almost to their contemporary extremes.

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A wild April ended almost exactly where it started for the S&P 500, leaving our downside estimates pretty much unchanged. A decline to median levels (1957-date) would put the S&P 500 at 3,487 (a 37% loss).

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The S&P 500’s March loss was its worst since December 2022. The Q1 decline broke the index’s streak of five consecutive quarterly advances. Still, downside to median levels remains substantial: -38% based on 1957-to-date history; -25% using data from 1995-present.

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To return to median valuation levels, the S&P 500 would need to decline 42% (based on 1957-to-date historical figures).

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Our Normalized S&P 500 P/E multiple (31.5x) ended January just below the contemporary high-water mark of 32.2x set at the end of November. This is the eighth consecutive month the ratio has been north of 30x—the threshold associated with previous market bubbles.

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The S&P 500 lost 2.5% in December but fared far better than both Mid- and Small-Cap Indexes (S&P 400 -7.3%; S&P 600 -8.1%). From today’s level, the S&P 500’s potential downside to its 1957-forward median is -43%.

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The S&P 500 returned to its winning ways in November, logging its largest monthly advance (+5.7%) in a year; over the last 13 months, the index has a price gain of 44%.  

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A Halloween loss of nearly 2% snapped the S&P 500’s five-month win streak. October’s loss, however, did little to ease the downside-to-median risk. 

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The S&P 500 shot up 5.5% in Q3 and marked the seventh advance of the last eight quarters. During this two-year period, the index has posted a total return of +66%.

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The S&P 500’s August gain was its ninth advance in the last ten months. If the index were to retreat to its median level based on data from 1957 forward, the estimated loss is now 43%.

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A second push on July 31st propelled the S&P 500 to another positive month (+1%). Now, if the S&P 500 fell to the 25th percentile (1957-date), it would lose 50%. Using the history since 1995, the downside is 35%.

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The S&P 500 scored another win in June, adding 3.5%. The index has now gained 30% since the end of October.

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The S&P 500 erased its April loss and set a fresh all-time high in May. Thanks to improved fundamentals, the weighted averages of these downside-to-median estimates sit just below their near-term highs of late March.

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The S&P 500 snapped its five-month winning streak as it shed -4.1% in April.

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The S&P 500 recorded its fifth consecutive monthly gain in March (+3.1%). For the first quarter of 2024, the index returned +10.2%, not terribly far from the +11.2% seen in Q4 of 2023.

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The S&P 500 posted its fourth consecutive monthly gain (+5.2%) in February. The index has advanced 22% since the end of October.

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The S&P 500 reached new all-time highs in January and closed the month with a modest 1.6% gain. The advance in the numerator widened our downside-to-median estimates another tick.

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Two years ago, the downside estimates were quite a bit more eye-popping than even today’s still alarming figures.

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The S&P 500’s 9% November advance erased almost all of the previous three months’ losses. The Index now sits very close to its near-term highs set at the end of July.

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