Markets, Economy

Weekly Kickstart (03/16/2020-03/20/2020)

3/16/20 8:00 AM

iStock-626627280.jpgThe stock market selloff accelerated last week, as the S&P 500 fell by 8.79 percent to 2,711.02. That left the benchmark index down 16.09 percent 2020-to-date, and 19.94 percent below the record close hit just one month ago. The speed at which equities declined last week at several times exceeded daily exchange limits, further exacerbating the sense of “panic” in the markets, and by Thursday the S&P 500 closed down enough to officially be in bear market territory (at least 20 percent below the interim high). Since 1929, the typical bear market has lasted 19.5 months, with an average max drawdown of 38.9 percent. That means even as severe as the recent selling pressure has been, additional declines would not be historically unusual. However, what is more revealing is that during this same sample period the typical bull market in the S&P 500 has lasted for 62.5 months and experienced an average gain of 182.7 percent. Altogether this implies that over the past century stocks have not only spent significantly more time in a bull market than a bear market, but also that the gains often greatly exceeded the declines.


This is another example of why regular investors are generally told to focus on the long-term rather than the day-to-day fluctuations in the market. Of course given how violent the declines have been lately it is easy to understand why some investors may have a hard time remaining calm when markets are plunging even though historically refraining from panic selling has tended to be a smarter course of action. For example, from January 2000 to the end of 2019, 24 of the 25 worst trading days occurred within a single month of the 25 best trading days, and 6 of the 10 best days occurred within two weeks of the 10 worst days. Moreover, since 1952 when the S&P 500 has fallen by at least 5 percent on a Monday (which futures as of this writing suggest could occur today), the broad index has ended the next 1- and 3-month periods higher 77.8 percent of the time, and on nearly 9 out of 10 occasions has risen by a median of 14.7 percent over the following six months. However, despite these reassuring statistics it is important to remember that past performance does not guarantee future returns, and there is still a lot of uncertainty surrounding the coronavirus that could keep market volatility elevated in the near-term. Any investors unsure how to navigate this environment may want to consult with a professional financial advisor and make sure their positioning is properly aligned with their risk tolerance, retirement goals, and other unique variables. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that mortgage applications surged, wholesale and trade-related price pressures eased, small business owner confidence firmed, and the number of Americans making first-time claims for unemployment benefits declined. As for the negatives, household inflation ticked higher, and consumer sentiment deteriorated. This week the pace of economic data picks up slightly with a few important reports on housing, manufacturing, consumers, and employment scheduled to be released, along with a likely market-moving announcement on monetary policy from the Federal Open Market Committee on Wednesday.


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Sources: Econoday, J.P. Morgan, Twitter, FRBSL

Post author: Charles Couch