I know this may be a little stale, but man I got hit with some food poisoning and I was down for the count. Anyway, the market slide. These things happen. Markets sell off. Sometimes they sell off for a reason and sometimes it’s just because there are more sellers than buyers. I believe that investors are feeling this pullback now because we have gone so long without a serious pullback and it’s easy to anchor on what has been experienced recently. Some smarty-pants refer to it as “Recency Bias”. I’ve got some stats to share that may shed some light on how often pullbacks happen that may be helpful in understanding why this is probably something to wait out rather than make potentially harmful changes to portfolios.
So it was back on September 19th that the S&P 500 hit 2019.26 during the trading day and went on a skid through October 15th when it hit an intraday low that constituted a sell-off of about 9.8%. This was just shy of a 10% sell-off, which is the commonly accepted percentage for declaring a “correction”.
So let’s just round down to 10% for the purposes of perspective.
Using history as a guide, and some help from the folks at Dorsey Wright and Associates (86 years in this case), how often has the S&P 500 corrected by 10%?
Answer: 93 times.
So let’s call that once a year. Keeping that in mind, when was the last time we had a 10% correction?
August of 2011. Remember those days? Calls for a double dip recession for the 2nd or even 3rd time depending on whom you deem a credible economist, TV reporter, or screaming CNBC guy from the trading pits. Oh, and we had the debt of the U.S. Government downgraded, too. Granted, we had a 19% pullback that month, but still, that was the last time we saw 10% (or greater).
So 3 years without a 10% correction. That probably explains why this pullback has felt harder than it really is.
It’s not to say that there have not been longer stretches of time without a 10% pullback. 2003 to 2007 saw a stretch of about 4 ½ years and that was during what most consider a secular bear market. The bull market period from the 80’s through the late 1990s saw a 7-year stretch of time from August of 1990 to October of 1997 without a 10% correction.
Finally, for those of you wondering “okay, well how about 5% pullbacks?” Those are much more common, happening 298 times. Or 3 ½ times a year. FYI, this is our second 5% pullback in 2014 and since the market bottom in March of 2009, we have had 20 pullbacks of 5% (which includes this current one).
Okay, there is some other stuff to talk about also, but the biggest one is oil. Energy companies make up a big chunk of the major indices so when they get hammered, the indices reflect it. While this is a BROAD oversimplification of reality, it’s true that energy companies generally do worse when oil prices sell off. But, in exchange, the consumer and many other industries will do better since consumers have more to spend when it costs less to fill the tank, and companies do better when transportation costs and production costs associated with the use of oil go down. But this gets reflected in future earnings so the effect won’t exactly offset at the same time.
As for gasoline, the folks at Bespoke had some data out last week that showed the price of gas in each state. The national average for a gallon of gas is $3.15 and there are currently 13 states with gas prices under $3 per gallon. Hawaii is the only state with prices above $4 (and let’s face it, the only thing you can get in Hawaii for less than $4 is an ass kicking at a local’s surf spot).
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.