Unexpectedly Intriguing!
August 13, 2015

Since we counted up all of the S&P 500's losing streaks by their duration earlier this week, we thought we'd follow up and repeat the exercise for all the S&P 500's winning streaks before the week ended. The chart below shows our results:

We find that while the number of two-day-long winning streaks is lower than the number of two-day-long losing streaks, once we get to streaks of three days or longer, the number of winning streaks outnumber the numbers of losing streaks for each duration.

Not only that, we find that the longest winning streak of 14 consecutive trading days for the S&P 500, which ran from 26 March 1971 through 15 April 1971, is longer than the longest losing streak, which ended after 12 consecutive down days for the index.

Digging into the history of the market of that time, we didn't find any evidence of a change in the Federal Reserve's monetary policy influencing the expectations that drive stock prices at that time, although we will note that just seven days earlier on 19 March 1971, Fed Chair Arthur F. Burns met with President Richard Nixon in the White House, where the President first broached the topic of having the Federal Reserve act to manipulate the U.S. economy to the President's favor in the upcoming 1972 election year. However, although Burns was predisposed to be loyal to President Nixon, it wouldn't be until Fall 1971 that the Fed would really go all out to "goose" the economy by pushing down interest rates below their natural rate a year ahead of the national elections in 1972.

Instead, we think the best explanation for the longest ever recorded winning streak for the S&P 500 had a lot more to do with interest rates hitting a low point during the mid-March to mid-April 1971 time frame, after which they quickly rebounded back up to the levels at which they had started the year.

As for the Fed's stimulative actions, they achieved the desired effect as President Nixon sailed to re-election. But with one really nasty side effect, as it initated the massive inflation that characterized the rest of the 1970s. And though it did help provide a short term positive boost to U.S. stock prices, it couldn't be sustained and where stock prices were concerned, the 1970s was, on the whole, a period of stagnation.

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