Market Signals & The Implausibility of Gains

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It has, apparently, escaped nobody’s notice that investors have been enjoying rather…unusual success since 2019. The S&P 500, that curiously-named index of American corporate endeavour, has managed to rally by at least 16% over three consecutive years—a feat it’s accomplished only three times in its entire history. Two of those instances, rather suspiciously, have occurred since 2019 (2019-2021 and 2023-2025). One begins to suspect a glitch in the matrix, or perhaps a remarkably efficient team of statistically-inclined squirrels.

The Dow Jones Industrial Average, a name that evokes images of gleaming gears and determined men in bowler hats, has also bravely breached the 50,000 mark. And the Nasdaq Composite, a collection of companies that mostly involve blinking lights and complex algorithms, briefly touched 24,000. It’s all becoming rather…uncomfortable. Investors are, it seems, becoming desensitized to good news. (Which, as any seasoned observer of human nature will tell you, is a profoundly dangerous state of affairs.)

But before we all start assuming the stock market is now an impenetrable fortress of financial bliss, a rather insistent signal has begun to flash. It’s a signal rooted in historical precedent, a sort of financial echo from the past. The question, of course, is whether anyone will actually listen. (A question, incidentally, that applies to most things in life. Mostly ignored, mostly.)

From “Magnificent” to “Mildly Disappointing”

Let’s preface everything with a disclaimer. If there existed a guaranteed method of predicting the future of the stock market, everyone would be using it. (And probably arguing about who invented it first, and demanding royalties. It would be messy.) The very notion of a perfectly predictive metric is, frankly, absurd. (Like expecting a tea leaf to accurately forecast the outcome of a quantum physics experiment.)

However, some data points do seem to correlate with significant market movements. These correlations aren’t causal, of course. (The universe rarely works that neatly.) But they’re interesting enough to warrant a moment’s consideration.

Ryan Detrick, Chief Market Strategist at Carson Group, has recently illuminated one such signal. He’s been examining the S&P 500’s performance over the last 76 years (1950-2025), specifically looking at whether the index dipped below its December low during the subsequent first quarter (January 1 – March 31). It’s a surprisingly simple metric, really. (Like measuring the length of a shadow to determine the price of fish.)

The results are…intriguing. Detrick found 38 instances where the S&P 500 did fall below its December low, and 38 instances where it didn’t. In the latter scenario, the index finished higher 94.7% of the time, with an average gain of 18.9%. Respectable, if a little showy. However, when the S&P 500 did fall below that December low (as it did last week, rather ominously), it was only higher 50% of the time, with a paltry average annual gain of 0.2%. In other words, breaking that December low seems to downgrade projected returns from “magnificent” to “mildly disappointing.” (A fate worse than death for some investors, no doubt.)

Several Headwinds are Gathering (and Possibly Plotting)

The fact that the S&P 500 has decisively fallen below its December low comes at a time when the market is already facing a number of…challenges. (Or, as some might say, potential catastrophes.)

There’s the looming possibility of an artificial intelligence (AI) bubble. Demand for AI infrastructure is, admittedly, off the charts. But history has repeatedly demonstrated that every genuinely revolutionary technology is inevitably followed by a period of irrational exuberance, a spectacular crash, and a lot of regret. (It’s a pattern as reliable as the changing of the seasons.) It seems highly improbable that AI will somehow escape this fate. (Though, admittedly, anything is possible in a universe governed by quantum mechanics.)

The stock market also entered 2026 at its second-priciest valuation in history. The Shiller Price-to-Earnings (P/E) Ratio, a measure of market valuation, is currently bouncing between 39 and 41. (Which, in historical terms, is rather like trying to balance a house on a golf ball.) The only time the market was pricier was in the months leading up to the bursting of the dot-com bubble.

The five previous times the CAPE Ratio exceeded 30 during a bull market led to declines ranging from 20% to 89%. (Which, let’s be honest, is a rather alarming range.)

And then there’s the impending shake-up at the Federal Reserve. Jerome Powell’s tenure as Fed chair is drawing to a close, and President Trump’s nominee to replace him, Kevin Warsh, has a historically hawkish voting record. He favours balance-sheet deleveraging, which could ultimately increase borrowing costs. (Which, for anyone planning to buy a house, is not ideal.) Investors are counting on future rate cuts, but Warsh may have other plans. (The universe, it seems, enjoys a good paradox.)

Take Note: Market Cycles Aren’t Linear (They’re More Like Wobbly Spirals)

Based solely on this one historical data point, the major stock indexes may be in for a challenging year. But this doesn’t mean investors should immediately sell everything and hide under a rock. (Though, admittedly, that does sound rather appealing.)

The most important takeaway from examining historical return data is that market cycles aren’t linear. They’re more like wobbly spirals, occasionally interrupted by unexpected jolts and sudden plunges.

Market corrections, bear markets, and abrupt declines may be feared events. But in the grand scheme of things, they’re the inevitable price of admission to a phenomenal wealth-creating machine. And, historically, they’ve been surprisingly short-lived.

Analysts at wealth management firm Bespoke Investment Group recently posted a data set comparing the length of every S&P 500 bull and bear market since the Great Depression. Over more than 96 years, there was a stark difference. The average bear market lasted 286 calendar days (about 9.5 months), with the longest lasting only 630 days. In comparison, the average bull market endured for 1,011 calendar days, with 10 lasting over 1,200 days.

Historically, every correction or period of underperformance has represented an opportunity for long-term investors to position themselves for future gains. (Though, admittedly, it requires a certain amount of courage. And a healthy dose of skepticism.)

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2026-03-17 14:12