Drawdowns in Flat Years

posted in: Uncategorized | 0

In reading various end of the year commentaries, there seem to be a fair number of people expecting a flat or mid single digit increase for the S&P 500 in 2014.  This seems like a logical possibility since the index was up 30% last year.

If the index does close flat for the year though, it’s likely that there will be volatility along the way.  It would be extremely surprising if the S&P 500 traded in a narrow band for the next 360 days.

The S&P 500 has had 10 years since 1957 that it changed by less than 5% over the full year (listed below).  In those years, the lowest point of the year has on average been 10.6% lower than the starting mark.

Volatility in Flat Years


In these years the low of the year has surprisingly occurred most frequently in the fourth quarter.  The low has been set four times in the final quarter compared to thrice in Q2, twice in Q1 and only once in Q3.

Three trading days into the year, the S&P 500 is currently 1.2% lower than where it started, which means that if you have an outlook for a small gain in 2014, it’s likely you’ll get a better buying opportunity.  However, you may have to be patient.