NEW YORK: Should American investors, US$6 trillion richer after the stock market’s best year in six, take shelter now, convinced a reckoning is at hand and the good times won’t last? As far as earnings, the economy and equities themselves are concerned, the answer is no.

Or at least, not necessarily. Past performance isn’t always indicative of future results.

But if you’re looking at the size of this year’s gains and deciding they somehow doom 2020 to being a disaster, history suggests a more nuanced approach is called for.

Good stretches in stocks are not usually followed by bad ones. When the S&P 500 has risen 20% or more over a calendar year, it’s had positive returns in the next one two-thirds of the time.

Average gains were more than 6.5%, according to Bespoke Investment Group. Record stocks have usually foretold improving earnings, as well.

“The market is forward-looking and taking in all the positive data, and there’s more positive data right now than negative, ” Katerina Simonetti, a senior vice-president at UBS Financial Services, said in an interview at Bloomberg’s New York headquarters.

“The market is positioned for growth in 2020.”

It’s rare, though not unheard of, for the economy to tank right after a rally as big as this. Since 1930, there have been 17 calendar years in which the S&P 500 gained 25% or more.

A recession followed three times – in 1990,1981 and 1937. Economists surveyed by Bloomberg place the odds of a recession in the next 12 months at 30%.

While recessions and big rallies are both probably too rare to generalise much about their connection, usually the market isn’t this buoyant just before a downturn.

Equities are a mirror image from last year’s fourth quarter. One explanation for that meltdown is that it represented investors sussing out a poor year for corporate earnings and adjusting prices accordingly.

What about now, when the S&P 500 has jumped 9% since the start of October, gaining in 11 of the last 12 weeks? If you believe share prices are prescient, it bodes well for 2020’s tidings.

An October study by the research firm CXO Advisory Group LLC looked at the relationship between earnings and market moves and found that stocks usually anticipate corporate results, not the other way around.

The “strongest indication” observed in the study was that equity returns lead earnings by a quarter. — Bloomberg