The S&P500 closed 0.42 percent lower today, the sixth consecutive down day to start the month of June. Only once in the past 60 years has the S&P started June with six straight lower closes. After an 18.24 percent early year run-up on the back of the first Gulf War victory the S&P peaked in mid-April 1991, corrected, rallied, then proceeded to trade down six consecutive days at the beginning of June.
Similar to 2011, 1991 was the third year of a first term President, the economy was suffering from the aftermath of an oil price shock and in the midst of a severe bank lending credit crunch, and the unemployment rate remained stubbornly high throughout 1991 and into the 1992 election. President Obama and his advisors should use 1991 as a case study in how to lose the Presidency.
Nevertheless, the chart below shows that after peaking in April 1991, the S&P500 traded in a 7-8 percent range until December when it ramped over 10 percent in the last 14 trading days of the year to generate an annual return of 26.31 percent. We have also superimposed the S&P500’s 2011 performance on the chart.
Will 2011 repeat or rhyme with 1991? We don’t know, but 1991 does show that being patient and preserving capital while the market consolidated a large run-up paid handsomely.
Furthermore, there are enough similarities between the two years to make us think about the case where stocks trade in a similar range before breaking higher later in the year after many of the issues currently weighing on the market are resolved or become more clear. Holding and bouncing off the S&P500’s 200-day moving average at around 1249 would make a 1991-like scenario more convincing.
A negative close on Thursday would make seven straight down days for the S&P500. In our 1950-2011 database, this has only happened 83 times and is unprecedented for the first seven trading days of June. Stay tuned.
(click here if charts are not observable)