Despite the huge comeback in the S&P 500, investors remain skeptical of the bull rally. If history is any guide, they shouldn't be so worried. 

Bespoke Investment Group took a look at previous years that closely resemble the big drop, and even bigger comeback, the S&P 500 has experienced since January, and it's good news for the bulls. "In terms of rest of year returns for the years highlighted [in the table below], the S&P 500’s average performance has been +3.8 percent with positive returns 80 percent of the time," the report stated. "This is pretty much right in line with the overall average for all years since 1930." In fact, the year with the least resemblance to 2016 was the only one in which the S&P was down by double digits through the rest of the year. 

The report isn't, however, good news for those hoping for a big year to the up or down side. Only three of the 10 years the firm looked at had double-digit moves by yearend. "In terms of extremes between now and year end, the S&P 500’s median maximum gain and loss are both equal at 7.9 percent, and in both cases this is actually less extreme than the median maximum gain and loss for all years since 1930," Bespoke said. 

David Fuller's view

I would not be too reassured by this article, which states what for me would be a best-case scenario. 

We are only in the foothills of the USA’s gradual return to monetary policy normality, while Europe, Japan and China lag far behind.  Global GDP growth is still very slow but stimulative monetary policy in Europe and Japan is probably less effective relative to a few years ago, and there is not much evidence of fiscal stimulus in any developed economies.  Bond market yields suggest that deflation is still a greater concern than inflation, even for the USA.  Corporate profits for American companies should be somewhat better in 2Q, at least for Autonomies and other multinational companies.  However, investors may remain wary until they see positive evidence of an upturn in earnings growth, which is not achieved mainly by layoffs and stock buybacks. 

Among the two most positive developments, in my opinion, are the somewhat weaker Dollar Index this year, although it rallied from a short-term oversold condition yesterday and is firmer again today.  Eoin also pointed out numerous key day reversals on Tuesday for a number of currencies which had firmed against the USD this year.  

The other encouraging development is the firmer tone among commodities, confirming that the sector is now in a recovery phase, as this service has maintained.  Nevertheless, commodities are volatile and we are now seeing reactions and consolidations following recent gains.  These pullbacks may be sharp, especially if the Dollar Index shown above extends its rally well into the overhanging trading range.  That would create another buying opportunity, in my opinion.    

Please note: My copy for Wednesday was delayed by a lengthy loss of our internet connection commencing around 1am BST.