With the S&P 500 Index falling nearly 10% over the past three weeks, there’ve been a lot of panicky headlines. Markets aren’t in a happy place, and the technical damage implies there may be more pain to come. However, as Bloomberg's Mark Cudmore warns, for those searching for a bottom, history doesn’t offer much solace.
The S&P 500 is still more than 5% above its 200-week moving- average, a level we haven’t touched in four years. But this line isn’t a base. We were motoring along above it from 2004 through 2007 as well, but by 2009, we were 48% below it. The 2002 trough was 38% below it
Sure, January’s declines are scary, and we’re only halfway through. But the index halved its value between 2000 and 2002; it then lost 57% between 2007 and 2009. In contrast, the biggest correction over the past 4 years was last summer’s 12% dip
It’s more worrying that the total rally from 2002 to the 2007 peak was only 105%. This time we’ve rallied 220% from the 2009 nadir to last year’s record high. The higher you climb, the harder you fall
Optimists argue that the last correction coincided with a deep U.S. recession –- not something we’re even close to considering right now
However, naysayers point out that U.S. equities haven’t been connected to growth for many years. The U.S. has averaged a respectable annual growth rate of just over 2% the past 4 years. The S&P 500 averaged 13% per year over that period
Equity prices have been fueled by extraordinarily easy monetary policy. Policy that is now tightening for the first time in over nine years
Perhaps the fact this correction comes at the start of January makes it seem particularly bad. But in the context of how far we’ve rallied, it’s really quite minor. So far.
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In other words, you ain't seen nothing yet...