A historically strong stretch for the U.S. stock market is about to begin

By Joseph Adinolfi

The market's next 18-month 'favorable' stretch is set to begin in October

A historically strong stretch for stocks is set to begin in October.

Some investors are worried that this artificial-intelligence-powered bull market might be getting a little long in the tooth as it approaches its fourth birthday.

But according to one technical strategist, a historically strong 18-month stretch for stocks is just beginning. On Oct. 30, the next "favorable" stretch in a seven-year cycle identified by SentimenTrader's Jay Kaeppel is set to begin. Historically, these periods have resulted in abnormally strong returns for stocks over the past 106 years, Kaeppel explained in commentary shared with clients and MarketWatch.

Past performance is hardly prophecy, and even Kaeppel admits that he has struggled to produce an explanation for why this seven-year cycle has seemingly worked as well as it has. Then again, the cycle identified by Kaeppel is hardly the only calendar-based anomaly to be identified by market researchers. Sometimes in investing, it pays to simply go with whatever works.

"Over 100 years of history suggest that the odds of a bull market will improve after Oct. 30th of this year," Kaeppel wrote.

 
Measure                       Favorable  Unfavorable 
No. of times up               27         20 
No. of times down             3          9 
% of times up                 90         69 
% of times down               10         31 
Average % +(-)                26.8       4.9 
Median % +(-)                 29.1       6.3 
Average winning trade % +(-)  31.3       18.4 
Median winning trade % +(-)   30.2       14.4 
Average losing trade % +(-)   -13.6      -25.1 
Median losing trade % +(-)    -8.3       -16.8 
Maximum win %                 76.4       60.2 
Maximum loss %                -26        -69.5 
No. of wins >= 20%            19         6 
No. of losses <= -20%         1          4 

Kaeppel has done the research and found that over the past 106 years, the U.S. equity market has followed a seven-year cycle with uncanny regularity. Each seven-year cycle can be divided into two cycles of three and a half years, which are then subdivided into a "favorable" 18-month period and an "unfavorable" 18-month period.

While stocks have generally trended higher across all periods, Kaeppel explained that returns during the unfavorable stretches have been far more volatile and inconsistent than what has been seen during the favorable periods. The favorable stretches have produced much stronger average win rates and returns, as the table above shows.

That being said, the current period in the cycle has worked out well for stocks, despite the unfavorable designation. Since Feb. 13, 2025, when the current 18-month stretch began, the S&P 500 has returned more than 26%, FactSet data showed.

U.S. stocks were trading lower on Tuesday, with the S&P 500 SPX, Dow Jones Industrial Average DJIA and Nasdaq composite COMP all in the red. Meanwhile, the small-cap Russell 2000 RUT was hanging on to early gains, FactSet data showed.

-Joseph Adinolfi

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08-11-26 1140ET