Implications of S&P Price Reversion to Trend

April’s S&P 500 index price was 80% above its long-term trend. Jill Mislinski, a research director with Adviser Perspectives, analyzed long-term stock market patterns by using simple regression analysis on S&P Composite Index data in a recent article, concluding that regression to the trend has occurred repeatedly across 14-plus decades of market history. The two charts below show the inflation-adjusted price from 1871 to April 2016. Note, for example, that the peak in 2000 far exceeded the market trend, which was double than that of 1929, right before the stock market crashed. For the past 12 months, the market has been above trend. The chart shows a largely steady uptrend since 2009. The data analysis shows what most good investors know; over a long period, underperformance turns into outperformance, and vice versa.

sp chart 2


sp chart 1