2012 Could Be A Monster Year For The S&P

Includes: SPY
by: John Cofran

The S&P will close within five percent of even (+/- 5%) for the year.

Looking back at data reported by S&P since 1926, in years the index closes within 5% of even, the average annual return of the following year is 26.34%:

S&P Returns Following Flat Years

Year S&P Return Following

Year Return



1939 -0.41% -9.78%
1953 -0.99% 52.62%
1960 0.47% 26.89%
1970 4.01% 14.31%
1981 -4.92% 21.55%
1990 -3.11% 30.47%
1994 1.32% 37.58%
2005 4.91% 15.79%
Average 26.34%

As you can see from the table, since 1926 there have been nine occurrences of flat calendar year returns. Only once, in 1939, was a flat year followed by a negative year. In all other occurrences, the market rallied by at least 14.31% in the calendar year following a flat year, with an average return of 30.86%.

As we look ahead to 2012, it appears many factors support the bull case for a major market advancement: removal of presidential election uncertainty, strengthening economy, resolution of European debt crisis, strengthening of corporate balance sheets and earnings, modest market valuations and the highly anticipated IPO of Facebook.

With many of the clouds of uncertainty abating, and given the historical probabilities of significant positive returns following a flat market year, I feel confident we will retest the 2011 highs in 2012, and possibly the 2007 all-time highs in the S&P.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.