The stock market is officially in a correction... here's what usually happens next

The stock market is officially in a correction... here's what usually happens next

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.

But the pain lasts for 22 months on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline is 30 percent for bear markets.

The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years.


The S&P 500 fell officially into correction territory on Thursday, down more than 10 percent from its record reached in January.

If this is just a run-of-the-mill correction, then we are looking at another four months of pain, history shows. If the losses deepen into a bear market (down 20 percent), then it could be 22 months before we revisit these highs, history shows.

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.



Source: Goldman Sachs

But the pain lasts nearly two years on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline in a bear market is 30 percent, according to Goldman.



The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years

Stocks remain in an upward bull market trend, the second longest in history.

S&P 500 corrections and bear markets since WWI



Source: Goldman Sachs

Evelyn Cheng CNBC



https://www.cnbc.com/2018/02/08/the-stock-market-is-officially-in-a-correction--heres-what-usually-happens-next.html?__source=Facebook%7Cmain

Enjoy the rally while it lasts - but expect to take a sucker punch

Enjoy the rally while it lasts - but expect to take a sucker punch


Our delicious spring rally is nearing the limits. The 40pc rise on global bourses since March assumes that central banks have conjured away the debt overhang by slashing rates to zero and printing money. Nothing of the sort has occurred. Two thirds of the world economy will be in deflation by July.

By Ambrose Evans-Pritchard
Last Updated: 6:43AM BST 11 May 2009

Comments 20 Comment on this article

Bear market rallies can be explosive. Japan had four violent spikes during its Lost Decade (33pc, 55pc, 44pc, and 79pc). Wall Street had seven during the Great Depression, lasting 40 days on average. The spring of 1931 was a corker.

James Montier at Société Générale said that even hard-bitten bears are starting to throw in the towel, suspecting that we really are on the cusp of new boom. That is a tell-tale sign.

"Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair yet again," he said. Genuine bottoms tend to be "quiet affairs", carved slowly in a fog of investor gloom.

Another sign of fakery – apart from the implausible 'V' shape – is the "dash for trash" in this rally. The mostly heavily shorted stocks are up 70pc: the least shorted are up 21pc. Stocks with bad fundamentals in SocGen's model (Anheuser-Busch, Cairn Energy, Ericsson) are up 60pc: the best are up 30pc.

Teun Draaisma, Morgan Stanley's stock guru, expects another shake-out. "We think the bear market rally will end sooner rather than later. None of our signposts of the next bull market has flashed green yet. We're not convinced the banking system has been fully fixed," he said

Mr Draaisma said US housing busts typically last nearly about 42 months. We are just 26 months into this one. The overhang of unsold properties on the US market is still near a record 11 months. He expects the new bull market to kick off later this year – perhaps in October – anticipating real recovery in 2010.

Keep an eye on the upward creep in yields on the 10-year US Treasury, the benchmark price of world credit. This alone threatens to short-circuit the rally. The yield reached 3.3pc last week, up over 1pc since January and above the level in March when the US Federal Reserve first launched its buying blitz to pull rates down. Bond vigilantes are taunting the Bank of England in much the same way, driving the 10-year gilt yield to 3.73pc.

The happy view is that this tightening of the bond markets is proof of recovery fever, but there is a dark side.

Governments need to raise $6 trillion (£4 trillion) this year to fund bail-outs and deficits, led by this abject isle with needs of 13.8pc of GDP (EU figures). China fired a warning shot last week, saying the West risks setting off "inflation for the whole world" by printing money. It hinted at a bond crisis.

Yes, the glass is half full. China's PMI optimism gauge has jumped back above the recession line. The global PMI has been rising for seven months. But this usually happens after a crash as companies rebuild battered inventories for a quarter or two.

Note that container volumes in Shanghai fell 17pc in January, 22pc in February, and 9pc in March. Rail freight volumes in the US were down 32pc in April on a year earlier.

The Economic Cycle Research Institute (ECRI) says the US recession will be over by summer, insisting that its leading indicators have never been wrong – except once, in the Great Depression. Quite.

SocGen's other bear, Albert Edwards, says the new element in this slump is that GDP is contracting in "nominal" terms, not just real terms. Money incomes are flat. It is a crucial difference.

"This is like drinking hemlock. The US is gradually slipping further towards outright deflation, just as Japan did," he said. As companies retrench en masse they risk tipping the whole economy into Irving Fisher's "debt deflation trap".

If we are spared – still a big if – we can thank a handful of central bank governors and policy-makers who tore up the rule book, defied tabloid opinion, and took revolutionary action in the nick of time.

We owe much to the Fed's Ben Bernanke (leaving aside past sins as Greenspan's cheerleader), to Britain's Mervyn King, and the Canadian, Japanese and Swiss governors. Hats off, too, to the Greek speakers at the European Central Bank who have just carried out a monetary putsch, outflanking German tank-traps on the Rhine. The hero is Athanasios Orphanides, the Cypriot governor who drafted the Fed's anti-deflation strategy during his 17-year stint in Washington.

The ECB's belated embrace of QE is a watershed moment, even if only a token purchase of €60bn of covered bonds. What poisoned the early 1930s was beggar-thy-neighbour monetary policies. Any country that tried to reflate alone was punished by currency flight (gold loss), yet the mediocrities in charge lacked the imagination to reflate together.

We can now test the Friedman-Bernanke hypothesis that the Fed could have halted the Depression by letting rip with bond purchases. Japan was not a proper test. It eked out a recovery of sorts earlier this decade by embracing QE, but only in the context of a global boom and a yen crash.

There is at least one more boil to lance before we put this debt debacle behind us. The IMF says eurozone banks have so far written down a fifth of likely losses ($750bn) compared to half for US banks. They must raise $375bn in fresh capital. Good luck.

Germany's BaFin regulator goes further, warning of $1.1 trillion of toxic assets on German bank books. Landesbanken are a calamity. If the IMF and BaFin are right, Europe has not yet had its crisis. When it does, we will see a second stress pulse through Eastern Europe and Club Med.

The echoes of 1931 are ominous. That year began with green shoots, until Austria's Credit-Anstalt buckled in the summer and took Central Europe with it. Continentals who still thought it was an American crisis learned otherwise. Plus ça change.


http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5301123/bEnjoy-the-rally-while-it-lasts---but-expect-to-take-a-sucker-punchb.html

Financial markets are racing well ahead of the real world

Financial markets are racing well ahead of the real world


Positive thinking is a powerful force, even when it doesn’t make much sense. That is one explanation for the mounting exuberance in financial markets.

By Edward Hadas, breakingviews.com

Last Updated: 8:50AM BST 06 May 2009

It’s not exactly 1996, when Alan Greenspan, the then chairman of the US Federal Reserve, warned of “irrational exuberance”. But there is an uncanny similarity in investors' willingness to look on the bright side.


Not all of today’s exuberance is irrational. The narrowing of credit spreads, to levels before the collapse of Lehman Brothers, can be linked to effectively unlimited government support. The reversal of stock market losses in the first few months of 2009 may be a justifiable response to green shoots of economic recovery – even if economists, corporate bosses and politicians are doubtful of the turn.

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But overall, markets and indicators are diverging. The price of oil has risen from $40 to $53 a barrel since February, but inventories are up and demand is down. US bank shares have risen sharply in spite of leaks that 10 out of 19 of them would fail the government’s not terribly exigent stress tests. Meanwhile, government bond yields are barely moved by deficits that would have been considered tragic a few years ago.


Bulls argue that the markets are thinking ahead: oil demand will turn soon and banks will shortly generate decent earnings to offset their losses. As for the deficits, the government can always shut down the money presses before inflation takes hold.


These may be true, but they do not justify the market euphoria. They are reminiscent of the dubious explanations provided by suspects in murder mysteries. Readers are well advised to ignore them, and look for the love interest. In market mysteries, the answer can be found in the money.


In the 1990s, too much money flowed into markets, thanks in large part to Greenspan’s low official interest rates. Now generous central banks and profligate governments are trying to keep the economy afloat with vast amounts of funding. Investors get first dibs on much of the cash. That kick starts markets. And that can help the economy. But right now, the markets are well ahead of the real world.


For more agenda-setting financial insight, visit www.breakingviews.com



http://www.telegraph.co.uk/finance/breakingviewscom/5278103/Financial-markets-are-racing-well-ahead-of-the-real-world.html

FTSE recovery or a sucker's rally?

FTSE recovery or a sucker's rally?

The Daily Telegraph asks some of the City's leading experts if the FTSE bounce signals a market turn.

By Jonathan Sibun
Last Updated: 12:38PM GMT 16 Mar 2009

The FTSE-100 rose an impressive 6.3pc last week and market participants are openly questioning whether markets have reached their lows for the first time since the financial crisis began.

After weeks of gloom the scale of the surge – with the FTSE up 223 points at 3753.7, the biggest full-week rise this year – took many by surprise.

The Daily Telegraph talks to some of the City's leading experts to ask whether it is time to turn back to equities.

Anthony Bolton

Fidelity International

All of the things I look for to be in place for a market bottom were in place last week, so I think there is a reasonable chance that we have reached a bottom. A new bull market could have started.

There are three things I have looked for.

The first is the pattern of bull and bear markets. In the US, the S&P index is down 57pc from peak to trough. That is the deepest bear market but one since the early 1900s. The exception was in the 1930s but that came after huge overvaluations in the 1920s.

The second is sentiment. You would have to go back to the 1970s to see when sentiment was last this bad.

And the third is that some valuations are now compelling. There are a lot of stocks out there that are undervalued.

I don't tend to focus on the economic outlook. If you focus solely on the economy you won't see it [the bottom]. You won't see a flashing green light. By the time you see the economic indicators the equity markets will already have moved.

Edward Bonham Carter

Jupiter Asset Management

If you are asking whether this is a reasonable time to be increasing equity exposure on a three-to-five year view then the answer is yes.

However, while investors are starting to be paid to take equity risk that doesn't mean we've reached the bottom. The lesson in history is that very few people can call the bottom.

This year is likely to remain schizophrenic. You will have periods of people thinking they can see the bottom and the effects of the actions taken by governments and then periods where people believe that the economy will remain in difficulty for some time.

It is possible we could fall through the 3,000 mark but a lot of people are trying to predict the unpredictable. In bear markets, rallies are the order of the day.

Between 1966 and 1982 markets traded in a broadly sideways pattern in a range of 300 to 400 points. It is highly possible we could see that again.

Paul Kavanagh

Killick & Co

The market was due a rally. I wouldn't call it a sucker's rally but neither would I call it the bottom. I can see us getting above 4,000 but I still believe there is a long way to go before we've bottomed out. We're looking at another year of working through this.

There is sentiment around job losses which has yet to feed through. Unemployment is a lagging indicator but it will hurt sentiment if 100,000 jobs are cut a month to Christmas. Consumer spending has yet to drop off a cliff but if unemployment reaches three million there will be an impact.

Tim Steer

New Star Asset Management

We may be reaching the bottom. One justification for saying that would be that much of the refinancing that companies are going to have to do is priced into the market. The market discounts what is going to happen and it is very easy to see which companies are in need of financing and which are not.

We have already seen some companies do well from that. In a few cases companies' share prices are going up in anticipation of a rights issue. The view is that while earnings will be diluted, there will be less of a debt problem.

Garry White

Questor Editor

A market bottoms when we reach what is known as the "point of maximum pessimism". This means that investors have lost so much money they completely throw in the towel - and shares correct to an undervalued level. I don't believe we are at this level yet.

The FTSE 100 is now trading on a price-earnings multiple approaching 16 – with many more earnings downgrades likely to follow the reporting season. Some analysts believe earnings at non-financial companies may slump 24pc in 2009, this means the "real" prospective multiple of the index is much, much higher. This rally has all the marks of a bear market rally and investors should beware.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5252775/FTSEs-11-week-high-sparks-hope-that-bull-market-may-be-arriving.html

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FTSE's 11-week high sparks hope that bull market may be arriving

FTSE's 11-week high sparks hope that bull market may be arriving

Hopes that the bear market in equities is over were buoyed as shares rose and more analysts speculated we could be in the early stages of a bull market.

By Edmund Conway
Last Updated: 9:27PM BST 30 Apr 2009

The benchmark FTSE 100 index rose by 1.3pc, capping its biggest monthly increase since 2003. The market's buoyancy comes with many experts claiming that the worst of the financial crisis and market slides are now over. The FTSE dropped by more than 31pc in 2008, but has now risen back to an 11-week high of 4,243.71, despite the spread of swine flu and warnings from the International Monetary Fund that the crisis is not even half-way over.

Analysts hailed the fact that the index increased by 8.1pc this month, with a strong performance from the banking sector yesterday.

Disappointing news is just being ignored, good news is being jumped on as an excuse to get involved," said David Morrison, market strategist at GFT Global Market.

Meanwhile, Anthony Bolton, the renowned fund manager and president of investments at Fidelity International, said a bull market may have begun in March.

"All the things are in place for the bear market to have ended," he said. "When there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that."

A report by Barclays Wealth said the likelihood is that the world economy has avoided depression and would escape with a milder recession. Aaron Girwitz, head of global investment strategy, said: "We suggest beginning to add more risk to portfolios, and look to Asia to lead the economic revival. Credit markets will outperform as risk appetite increases.

"But we remain somewhat cautious. Market volatility will ease back only gradually. We are not urging investors to increase equity allocations to levels above their strategic norms".

However, others have warned that with many banks still needing extra capital, the crisis and the associated bear market may have longer to run.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5252775/FTSEs-11-week-high-sparks-hope-that-bull-market-may-be-arriving.html

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Is This Rally for Real?

Is This Rally for Real?
by Mick Weinstein

Posted on Friday, April 17, 2009, 12:00AM

The S&P 500's rapid 26 percent rise since its March 9 low has investors wondering if stocks have put in a meaningful bottom. Has the time come to put new money to work in equities, or is this a mere bear market rally that will unwind shortly as indexes plumb new lows? Both cases rely on speculation regarding the macroeconomic picture, as traditionally the stock market has served as a leading indicator of broader economic recovery -- an indicator, that is, which one can only really observe in retrospect. Ben Bernanke, for one, sees "green shoots" of recovery sprouting up.

Here's one helpful starting place on the matter: a comparison chart of 4 Bad Bear Markets that DShort updates daily. Or in another (more humorous) framework, are we in Stage 13 or Stage 15 of this investor psychology chart? Econobloggers weigh in on both sides:


The 'This Rally's Got Legs' Camp

• Portfolio manager J.D. Steinhilber says this move should have staying power. Steinhilber cites "the sheer magnitude of the bear market declines in broad stock indexes (60%!) over the past 18 months" and believes "[t]he immensity of the government's stimulus efforts, both fiscal and monetary, which now total a mind-boggling $4 trillion, appear to be taking hold in the economy and markets." Steinhilber finds foreign stocks to be particularly attractive here.

• Doug Kass made a bold and timely market bottom call in March ("perhaps even a generational low") and remains bullish, but now names some "nontraditional headwinds" to be wary of.

• Both Scott Grannis and Bill Luby see a bullish sign in volatility falling back significantly of late. And Grannis notes that industrial metal prices have bounced: "Maybe it's the return of the speculators, but even if it is, it reflects a return of animal spirits and suggests that monetary policy is easy enough for people to start releveraging."

• Hedge fund manager Dennis Gartman also uses industrial metals as a leading indicator, and as Market Folly notes, Gartman uses the Baltic Dry Index and the Transports as signs we're exiting recession. In response to these all moving upward recently, Gartman "wants to be long copper and Alcoa, and short the Yen," as the Japanese are big importers of commodities.

• Octagon Capital technical analyst Leon Tuey sees extreme pessimism in the current CBOE put/call ratio and that, pushed along with massive new liquidity from the Fed, are signs "we are not witnessing a bear market rally, but a bull market, the magnitude and duration of which will surprise everyone."

• Jeff Miller of NewArc Investments sees a lot of skepticism about any positive economic signs. But Miller uses a remarkable sportsman's model to suggest we really may be moving upwards.


The 'Sucker Rally, Don't Buy It' Camp

• Tim Iacono has his eye on unemployment data: "Conventional wisdom over the last fifty years or so is that, during recessions, stocks make a bottom at around the same time that monthly job losses peak... If past is precedent and if the recent January decline in nonfarm payrolls of 741,000 turns out to be the peak for this cycle, then it is reasonable to believe that the March low in equity markets could be a lasting bottom. However, if either of those are untrue -- that this downturn will be different than previous recessions or that job losses have not yet reached their peak -- then we are more likely to see new lows sometime later this year. In my view, that is the most likely scenario."

• Tyler Durden believes quant funds drove up the market in March, in a "distortion rally" that lacked broad-based support: "Risk managers allocating capital to quants are prolonging and exacerbating the long-term bear markets in equities, creating an atmosphere of distrust and making markets unreliable tools of price discovery and playgrounds for rampant, Atlantic City-like speculation. In the words of both a NYSE chairman and a famous credit index trader, 'This will all end in tears.'"

• Peter Cooper says "the absurdness of this sucker's rally ought to be obvious to all... Unemployment is still rising, house prices are still falling, and the fundamentals of bank balance sheets are still deteriorating."

• Likewise, Henry Blodget finds the "'suckers' rally' argument far more persuasive than the 'new bull market' one...About the best we can say is that, after 15+ years of overvaluation, stocks are finally priced to produce average returns over the next decade (9%-10% a year or so)."

• Investor Sajal has a nice roundup of how various market gurus (Marc Faber, George Soros, Jim Rogers, and more) see things here. Most believe that we're in for further downside, and that this rally is not to be trusted.

• Finally, James Picerno says the trend may now be our friend, but still: "Even if the recession has bottomed out, that's a long way from saying that a return to growth is imminent. It's likely that the economy will tread water for several quarters at the least once the economy stops contracting. And while the stock market appears inexpensive, or at least fairly priced, it's still too early to expect that profits are set to rebound any time soon."

http://finance.yahoo.com/expert/article/stockblogs/157195;_ylt=AtyB1.Ieu7cNm2kW0kHNNvO7YWsA

What is a bear rally? What should I do?

Question: What is a bear rally? What should I do?

During a bear phase - a situation whereby share prices keep on falling to a new low after each rebound - share prices will, at a certain level, stage a steep upturn all of a sudden.

The buying power is so real that it appears as if a new bull market has been born.

Nevertheless, such a bear rally is often short-lived with a retraceable estimate of either 1/3, 1/2, 2/3 or even 100% of the fall.

(Note the recent 1000 points rise in 1 day of the Dow index and today's new low in Dow index)

During such a scenario, an investor should exercise caution when buying shares.


BEAR MARKET

Prices falling from point A -----> lower ----> to new low at point B ----
----------------------> Bear Rally (?% up 1/3, 1/2, 2/3 or 100% of AB)


Ref: Making Mistakes in the Stock Market by Wong Yee