Despite the S&P 500's solid advance in August, the downside estimates were virtually unchanged month-over-month, as robust growth in both earnings and cash flow continues.

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The S&P 500’s sideways action, coupled with continued red-hot earnings growth, narrowed our downside risk estimates by two to three percentage points month-over-month.

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The S&P 500’s sharp Q2 rally ended with a whimper, as the index shed 1% in June. Still, since the end of March, the 15% gain translates to the S&P 500’s best quarter since Q2-2020. From here, the index would lose 44% if it moved back to its median level based on data from 1957 forward.

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The rally in the S&P 500 continued through May, ending the month with nine consecutive weekly advances. The index has now advanced 19% since March 30th.

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The S&P 500 rocketed higher in April, posting its first double-digit monthly gain since November 2020. Based on data from 1957 to date, downside to median levels is now -44%.

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The index had its worst month since the tariff tantrum one year ago. Yet, a sharp rally on the last trading day took some of the sting out of the March loss; downside estimates narrowed by a similar amount.

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On a total return basis, the S&P 500 posted its first monthly loss since last April. Downside to median levels narrowed slightly but remain very close to contemporary extremes.

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Advances in the S&P 500’s underlying fundamentals marginally outpaced the improvement in price. Our “New-Era” downside-to-median estimate narrowed from -32% to -30%, while the 1957 to date figure was unchanged month-over-month.

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After narrowly averting a bear market in April, the S&P 500 rocketed 39% to end the year with an +18% total return. At present, our data shows the potential downside to revert to median levels is a loss of 44%.

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The index gained 5% in the last five trading days of November to eke out a minuscule gain—but it was enough to score its seventh-consecutive monthly advance. The S&P 500 is back within spitting distance of its all-time high set in late October.

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At the market trough back on April 8th, using history from 1995 forward, our downside-to-median calculation showed a potential loss of 13% for the S&P 500. Today, that risk measure sits at -34%, a contemporary extreme.

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Make that “five” consecutive-monthly advances for the S&P 500. From the April 8th low through the end of September, the index has returned an eyepopping +35%.

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The S&P 500 notched its fourth consecutive monthly gain through August, advancing 2%. Over that span, our downside estimate for the index to return to its historical median level (1995-forward) widened from -24% to -32%.

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The S&P 500’s potential downside to its 1957-to-date median is -44%, and its normalized P/E ratio of over 30x continues to be a concern. However, we can only cry “wolf” so many times… 11 of the past 14 month-end measures have been above that threshold.

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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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