Stocks are due for a pullback of up to 8% in the next 3 months, says LPL Financial

• The S&P 500 looks due to pullback by 5%-8% in upcoming months after a strong performance year-to-date.
• LPL Financial outlined its view as the benchmark index has nearly doubled since last year’s low amid the pandemic.
• The S&P 500 hasn’t had as much as a 5% pullback since October 2020.
• See more stories on Insider’s business page.

The US stock market roared back swiftly from its pandemic-induced crash last year and the S&P 500 has notched a double-digit gain so far in 2021 – but its performance puts the benchmark in line for a pullback by up to 8% before the year ends, says LPL Financial.

The gauge of the largest listed companies in the US has advanced by nearly 18% this year, with record highs supported in part by expectations of robust growth in corporate earnings as companies work to regain their footing as the pandemic eases.

The S&P 500 finished 2020 up 16% by clawing out of the bear market it slid into in March 2020 as the coronavirus pandemic unfolded. The index also finished strongly in 2019, springing up by 29%.

“After more than a 90% rally off the March 2020 bear market bottom (and near double on a total return basis) we do think the odds are much higher of a standard 5-8% pullback during the historically troublesome August/September/October period,” said Ryan Detrick, chief market strategist, and Jeff Buchbinder, equity strategist, at LPL Financial, in a Monday note.

“This isn’t a bad thing though, as some type of break could be necessary before another move higher,” the strategists said in outlining what they consider six surprises in markets so far this year.

The S&P 500 through Tuesday’s session had risen by 98% since its crash and bottom on March 23, 2020. Its climb started after the index slid 34% from its peak set in mid-February 2020, with investors rattled by the prospect of an economic recession from the COVID-19 outbreak. The index staged a fast recovery in reaching an all-time high in August 2020.

“Historically, year two of a bull market can be choppy and quite frustrating. After the huge gains we saw the last nine months of 2020, we entered 2021 expecting there to be more give and take than we’ve seen this year,” said the strategists. “In fact, the S&P 500 hasn’t even had as much as a 5% pullback since October 2020, one of the longest streaks ever. That is very surprising indeed.”

The S&P 500 has been fueled by anticipation of improved earnings. Ahead of this week’s busy docket for financial results, S&P 500 companies were on track for their best profit growth since 2009, with Refinitiv estimating a rise of 78.1% year-on-year in the second quarter.

The strategists also said they’ve been surprised by the lack of volatility so far in 2021. The stock market’s fear gauge, the Cboe VIX Volatility index, has dropped by 22%, hovering around 17.