What to expect after the Ibovespa rose 9.2% in one month? – 06/14/2023 – From Grain to Grain

In the last 21 working days ended today, that is, in practically one month, the Ibovespa appreciated 9.21%. With this increase, the main Brazilian stock index accumulates appreciation of 11.9% in the year. When we observe such rapid appreciation, two questions are raised: how common are rallies of this magnitude? What happens on average over the next 21 business days?

The recent appreciation of the Ibovespa surprised many institutional investors who were suspicious of any improvement in the short term.

The increase was driven by two factors:
1 – Strong drop in future interest rates as an expectation of a drop in the basic interest rate this year and next;
2 – Surprise with the release of GDP, showing that growth is more robust than expected and that tax incentives since the election period are having an effect.

Justifying the past is easy. The Ibovespa has already risen. But and now? What to expect in the short term?

I collected data on daily Ibovespa returns since 2000.

In this period, we have 5,786 observations of 21-day cumulative returns.

The average appreciation in windows of one month for the Ibovespa was only 1%.

From this data, you can already imagine how rare are the moments when the Ibovespa appreciates 9.21% as it did in the last month.

Amazed with this following information. Since 2000, the worst result in a period of 21 working days for the Ibovespa was a devaluation of -45.4%. You might already guess when it happened. Yes, it was March 2020, in the pandemic.

The best result in a window of 21 working days was an appreciation of 27.2%. Interestingly, it also occurred in March, but it was from the year 2016. Do you remember what happened in that year?

Let’s go back to the initial questions. Don’t be fooled by the recent appreciation. Increases of 9% on the Ibovespa in a one-month window rarely occur.

Since 2000, in just 12.7% of the observations, the Ibovespa has appreciated by more than 9% in a period of 21 business days.

Even less common is a rise of 9% or more in the 21 days following the first rise of at least 9%. This only occurred in 13.2% of the times when the Ibovespa presented the first monthly increase of 9%.

But there is a positive data. On average, after an increase of 9% or more in a one-month window, the Ibovespa appreciates another 2.29% in the following month.

However, care must be taken, as there have been times when the 9% rise was followed by declines. In the worst case, the Ibovespa dropped -21.8% after having appreciated more than 9% in the previous 21 days.

Remember, investing in stocks must have a long-term horizon. So beware of short-term euphoria. Only invest if you can keep the resources for a horizon of at least five years and if your investor profile is adequate to withstand volatility.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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