One Year Forward Return on S&P 500 Stock Market Looks Historically Positive From Here

The Stock Market as represented by the S&P 500 Index had a bad day, going down 60.66 points to 996.23 for a loss of 5.74%.

Historically, today is a unique day.

Previously, this blog made a study of the S&P 500 from 1950 to March 2008 and looked at the one year forward annual return based on the S&P 500 index in relation to the 52 week high and 52 week low.

We calculated a special value called HOLU which maximizes the distance away from the 52 week high, and minimizes the distance from the 52 week low.

From 1950 to March 2008, there are only 59 trading days where the HOLU value exceeded 30%. And the average one year forward return during those 59 days was a market beating 22.13%.

Today's HOLU Value is 36.79%, with the 52 week S&P 500 low of 996.23, and the 52 week high of 1576.09.

The highest HOLU value during this period was 44.11% on October 3, 1974.

The longest time period where the HOLU value remained above 30% was from August 14, 1974 to October 9, 1974 with the exception of two days in this period where the HOLU briefly went under 30%.

Time to Accumulate?

Based on this, now might be a good time to be a contrarian and start accumulating index funds or ETFs.

However, the market could still go lower and possibly approach the record 44.11% HOLU value on October 3, 1974.

But for the true long term investor, having a cost basis around this level or lower could be a profitable move.

Today's S&P 500

Forward Stock Market (S&P 500) Return Based on Distance from 52 Week High

What is the One Year Forward Return of the S&P 500 (from 1/1/1950 to 3/31/2008) when we are some distance away from the 52 Week High?

If the S&P 500 is 10% or more below the 52 week high, the average return during the 1950 to 2008 period, is around 11.72%, compared to 8.30% if the S&P 500 is within 10% of the 52 week high.

If we go further down to 20% or more below the 52 week high, the S&P 500 one year forward return goes up to 15.75%.

At 30% below the 52 week high, the one year forward return increases to 23.58%.

At 40% below the 52 week high, the average one year forward return is a whopping 31.28%.

So the pattern appears to be true:

The further we are below the S&P 500 52 week high, the better chances we have of having a better than average one year forward return.

If the Index loses 10%, we consider this a correction. If the index loses 20%, we often call this a bear market.

Today's S&P 500 Index Value

As of April 3, 2008, the S&P 500 is 1369.31, and the 52 week high is 1576.09.

This means that the S&P 500 is currently around 13% below the 52 week high.

While a greater percentage below the 52 week high would be ideal, 13% below the 52 week high is not bad, if we wish to invest for at least one year or more.