Looking at the S&P’s history since 1950 tells us that for the garden variety drawdown (roughly no more than -10%), returning to a previous high is a relatively swift affair – less than 100 trading days for the most part.īut as the final chart below reminds, recovery periods become a bit chaotic once the drawdown is deeper than -10%, a neighborhood where Mr. By that standard, the market is currently near the precipice.ġ00 Deepest S&P 500 Drawdowns since 1950 (Author)įinally, what should we expect for a market recovery? The speed of recovering the previous high depends, not surprisingly, on the depth of the loss. At roughly the -15% mark, give or take, it appears that the market crosses the Rubicon and enters into the deepest realm of drawdown activity. Current S&P 500 Drawdown (Author)įor another view of drawdown history, the chart below shows that the current drawdown is near the cusp of slipping into the realm of the sharpest losses. But that was unusual and the current situation is quite different and so it seems reasonable to prepare for what could be a relatively long run with the S&P bouncing around at levels well below the previous peak. The one outlier: the recovery from the March 2020 coronavirus crash. As a thought experiment, let’s consider the darker outlook and compare the current slide to the ten-deepest drawdowns since 1950.Ī quick rebound looks unlikely, or so history suggests. The current drawdown is still a youngster - the market’s previous peak was roughly two months earlier: January 4, 2022.Īs for where we go from here, it’s anyone’s guess at this point. The next chart provides another spin on where we stand at the moment vs. In other words, the correction could yet become substantially deeper and still rank as “normal,” or at least unprecedented. At the moment, there’s nothing unusual about the market’s downturn in terms of precedent.įor those keeping score, the drawdown to date is the 19 th deepest since 1950. 7, 2022) is still a middling slide (red line). As the first chart shows the current 12.4% peak-to-trough decline (through Mar. Yet pulling out of equities would have been a poor decision. In November 2008, consumers were stunned by the collapse of equity markets, the US subprime mortgage crisis and the demise of major financial institutions. Let’s start with a simple history of drawdowns for the S&P 500 Index. Here, too, when consumer sentiment dropped to a low point, stocks did well in the aftermath. The obvious takeaway: We’ve been here before, many times… so far. How the future plays out is clear as mud, but for some perspective on managing expectations we can start by reviewing the history of stock market drawdowns. He applies a unique 3-basket investment approach that aims for 30 lower drawdowns, 6 current income, and. All the more so given the global blowback due to the war in Ukraine. Whenever you want to invest a large sum in stocks. Is this the start of a long bear market? Or could this be just another garden variety correction that ends quickly? As always, the future’s uncertain. The US stock market appears to be caught in another one of its extended corrections.
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