Statistician Ryan Detrick recently did some analysis of flat markets, defined as less than +3% and better than -3%, and found these interesting statistics:
The last time the S&P 500 was flat two straight years was 1947 and 1948 at 0.00% and -0.65%.
Using historical data back to 1872, only 15% of all years end up flat.
66% of all years move at least 10% (up or down). 28% of all years move at least 20% and 11% move at least 30%.
If you expand the definition of a flat market a little further out to +4/-4% and begin the analysis when S&P 500 data becomes more robust in 1926, flat markets only occur 10% of the time, with nine occurrences across 90 years. Of those nine, two happened in the 1930s, two happened in the 1990s, and two happened this decade. They have never occurred back to back and three flat years have never occurred within the same decade. But this is just the S&P 500; what about other equity markets?
The MSCI EAFE Index, representing Foreign Developed equity markets, began in 1970 and over the past 46 years, its annual returns were flat 11% of the time. When looking at Emerging Markets, using the MSCI EM Index, which began in 1989, 11% of the time its annual returns were flat.
Market history should never be a means of predicting future performance. What has happened in the past does not mean the future will mirror it. But there are lessons to be learned by studying market history and its mechanics if it can give us potential insights on the likely distribution of returns. From the data outlined above, it is reasonable to conclude that we should expect the equity markets to be flat around 10% of the time. So, we know that markets will trade sideways on occasion, but why and what happens after?