S&P 500 Performance After Losing 6% In One Day after Having Lost -10% from its High and Setting a 53-Week High Sometime During the Past Four Months
|
Date |
1 day Later |
1 Week Later |
1 Month Later |
3 Months Later |
6 Months Later |
|
10/28/1929 |
-10.20% |
-9.40% |
-7.90% |
-4.90% |
12.00% |
|
10/29/1929 |
12.505 |
4.60% |
6.00% |
6.90% |
26.60% |
|
11/06/1929 |
3.70% |
-14.30% |
10.30% |
7.20% |
24.80% |
|
11/11/1929 |
-5.70% |
1.20% |
12.70% |
14.80% |
29.70% |
|
07/21/1933 |
0.60% |
10.70% |
9.60% |
6.10% |
3.50% |
|
09/21/1933 |
2.30% |
-3.80% |
-5.20% |
1.70% |
11.00% |
|
10/16/1933 |
3.30% |
-7.00% |
5.50% |
9.80% |
13.50% |
|
09/03/1946 |
-0.50% |
-6.10% |
-3.20% |
-7.70% |
4.30% |
|
10/19/1987 |
5.30% |
1.30% |
8.10% |
10.90% |
14.70% |
|
10/26/1987 |
2.40% |
12.30% |
8.20% |
9.60% |
15.90% |
|
08/31/1998 |
3.90% |
6.90% |
6.20% |
21.60% |
28.30% |
|
Median |
2.40% |
1.20% |
6.20% |
7.20% |
14.70% |
|
% POS |
73.00% |
55.00% |
73.00% |
82.00% |
100.00% |
|
|
|
Any Random Time |
|
|
|
|
Median |
.010% |
0.30% |
1.00% |
2.30% |
4.50% |
|
% Pos |
56.00% |
58.00% |
60.00% |
65.00% |
68.00% |
|
|
|
Study Period 1928- 2011 – Source www.SentimenTrader.com |
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What generally transpired was a quick rebound, with many of them testing their lows a week later before posting strong gains. All 11 occurrences did manage to recover and posted much better than average returns on a 1, 3, and 6-month basis. Six months later the market was higher for all 11 occurrences and the returns were three times better than average.
The economy and markets do not move in a straight line, and neither do economic recoveries.
Despite being painful, corrections occur on a frequent basis. Based on historical precedent, the market experiences three 5% corrections every year, one 10% correction every year, a 15% correction every two years, and a 20% or great correction every three years. The market has gained over 100% from its bear market lows in March 2009, so a correction was overdue. So far this is the second 10% or greater correction since the bull market began. We would caution investors against taking drastic action in this time of intense fear and emotion.
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