2014 has been an interesting year for the S&P 500 in that the index has steadily climbed higher throughout the year -- not too fast and not too slow. Even though this year’s pattern is actually much more realistic relative to the pace of earnings growth, usually we can expect stocks to move with more velocity in any given year.
Volatility
Over time, stocks average a high single-digit, annualized return, but in any given year, the market typically diverges from the average. It’s more common to have big up years and big down years than one where the index rises gently toward its long-term target. Even in years that the S&P 500 finishes with a high, single-digit gain, there is frequently significant intra-year volatility.
Eyeballing the data, I found two years in the last 65 that look relatively similar to 2014 in terms of trading pattern: 1993 and 1999. 1999 saw a pullback through mid October and then finished the year strong. 1993 kept the pace it had been on for the rest of the year and gradually climbed through year end.
It is worth noting that the years that followed, 1994 and 2000, were both shaky years for stocks.
