Market rallies are often seen as a powerful indicator of future growth, and a recent analysis by Jefferies sheds light on why that may hold true over the long term. By analyzing rolling 12-month (12M) performance data dating back to 1990, Jefferies’ research provides a compelling perspective on the trends following major rallies—and what investors might expect based on history.

The Power of a Strong Rally

According to the research, when the market experiences a strong rally over a 12-month period—defined here as a rally that reaches at least one standard deviation above the average (approximately 25%)—it tends to set the stage for further positive performance. This isn’t just a mild trend; in fact, there’s never been an instance of negative 12M performance following a rally of this strength. On average, after a +1SD rally, the subsequent 12 months have historically delivered another 15% in gains.

This finding highlights that robust rallies can serve as reliable indicators for continued momentum, suggesting that strong gains over a year may indeed be a sign of things to come rather than a peak in performance.

The Ripple Effect: Extending Gains to 24 Months

What’s even more remarkable is that this positive trend doesn’t stop at the 12-month mark. The data reveals that average gains extend well beyond the one-year point. Over a 24-month period, performance averages an additional 26%. This aligns with examples where multi-year rallies often continue to yield positive returns, even with fluctuations and pullbacks that naturally occur along the way. Such findings reinforce the view that investors who stay in for the longer term can often capitalize on sustained growth following a strong rally.

A Long-Term Perspective

This analysis is particularly useful for long-term investors who may be wary of rallies, fearing an impending correction. By examining decades of historical data, Jefferies’ findings suggest that when it comes to +1SD rallies, investors might be more likely to see gains extend over multiple years rather than fizzle out. While past performance can’t guarantee future results, historical trends can provide valuable context for current market behaviors.

As investors look forward, understanding these patterns offers a sense of optimism, suggesting that patience and a long-term strategy might just pay off, especially in the aftermath of a major rally.