Research.LeutholdGroup

The April haircut in the S&P 500 (-8.8%) combined with February and January losses brought a few of our 1995-to-date “Estimating The Downside” measures very close to their 27-year medians for the first time in recent memory. At present, downside to the median is now -16%. Based on 1957-to-date, the S&P 500’s estimated downside to the median is -30%.

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The S&P 500 clawed back some of its losses from earlier in the quarter but still declined almost 5% for the first three months of 2022—breaking a streak of seven consecutive advancing quarters.

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The S&P 500 suffered its first back-to-back monthly decline since the fall of 2020. From its month-end closing high in December to the end of February, the index has shed 8.2%. Over those two months, our downside-to-median estimates have both shrunk by a similar 7%.

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With a price decline of -5.2%, the S&P 500 suffered its worst month since March 2020. The carnage would have been much more severe (and downside estimates more rosy) had it not bounced +4.4% in the last two trading days.

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The S&P 500 closed out 2021 with a solid +4.4% monthly price gain. For the year, it clobbered all other indexes—foreign and domestic—with a +27% jump.

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Spooked by the new Covid variant and a more hawkish Fed, the S&P 500 gave up its November gains in the last few trading days of the month. Its loss of -0.8% was minimal compared to other market cap tiers.

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The S&P 500 gained 6.9% in October—it was the best month in a year. The steep rise in prices more than cancelled-out the brief dip in September. However, improving fundamentals limited the adjustments within our downside estimates.

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The S&P 500 shed 4.8% in September—its worst month since the panic of March 2020. This trimming of the numerator helped make our downside to median estimates a little less negative. In fact, these are the “best” figures we’ve seen since February.

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The S&P 500 stayed on cruise control in August, notching its seventh consecutive monthly gain. During that streak, our downside to median estimates have remained in a tight range as both numerators and denominators increased.

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Make that six consecutive months of advances for the S&P 500. Since the end of January, the index has gained 18% (price return) while our downside-to-median estimates have widened very little, to -43% from -41% (1957-to-date) and to -32% from -29% (new era 1995-to-date).

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The S&P 500 posted its fifth consecutive monthly advance in June and its fifth consecutive quarterly advance as we closed out Q2-21. The index’s 8.2% second quarter gain has not exacerbated our downside-to-median estimates, which stand exactly where they did at the end of March.

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The S&P 500 posted its fourth consecutive winning month in May. It was a modest gain (+0.6%), but all of our downside estimates managed to improve—a testament to the rapidly rising fundamentals.

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As the S&P 500 continues setting new records, so do our downside-to-median estimates. Once again, dramatically improving fundamentals could not keep pace with the index’s rise in price.

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The S&P 500 gained 4.2% in March. Again, as has been the case since last summer, improving underlying fundamentals have not been able to offset the rise in the index’s price.

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Back To Median Levels

This multi-factor estimate of stock market risk is based on a regression to median stock market levels. The valuation comparisons shown in the itemized tables consider all inflation periods since 1957. The summary tables present: 1) “all years” 1926-to-date; 2) periods of low (< 3%) inflation; and, 3) periods of high (> 5%) inflation.

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The S&P 500 had a monthly loss of 1% to start 2021. This moved our downside-to-median estimate just a tick under its contemporary extreme of -42%.

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The S&P 500 gained another 3.7% in December to close the year with a price return of +16.3%.

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The S&P 500 ripped to new all-time highs in November, posting a 10.8% gain. This move pushed our downside to median estimate for the index from -36% to -41%.

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Late-month weakness led to another monthly decline in the S&P 500. Now down roughly 7% since the end of August, our downside-to-median estimate has moved from -42% to today’s -36%.

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The S&P 500 broke a five-month winning streak and stumbled -3.9% in September.

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