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

Standard bull markets typically have a shelf life of less than four years

This Bull Market Is Hard to Pin Down
By PAUL J. LIM
Published: March 24, 2012

HISTORY says that standard bull markets typically have a shelf life of less than four years. So when the bull that sprang to life in March 2009 turned 3 this month, it understandably raised some concerns.

Enlarge This Image

Chris Goodney/Bloomberg News

Depending on how you mark the calendar, Wall Street’s recent surge could be just a late charge in a bull market ready to run its course. Or it could be the start of something bigger for stock investors.

Yet some strategists on Wall Street mark the calendar differently. They contend that the bull market that began in 2009 actually ended last year, when the Standard & Poor’s 500-stock index hit a rough patch from late April to early October.

During that stretch, the S.& P. 500 lost 19.4 percent from peak to trough based on daily closing prices — just shy of the 20 percent threshold for a bear market. On Oct. 3, though, the index actually fell through that barrier for a brief moment during the trading day.

If that was indeed a bear, the thinking goes, then a new bull market must have been born on Oct. 3. And that would imply not only that stocks have more room to run, but also that sectors like technology, which are sensitive to shifts in the economic cycle, are likely to do well. Despite a slight downturn last week, they have been buoyant for months.

“From an official standpoint, in terms of what Standard & Poor’s will count this as, the bull market is entering its fourth year because the market didn’t officially decline by 20 percent based on closing values,” says Sam Stovall, chief equity strategist for S.& P. Capital IQ. “However, if someone asks, ‘What do you think will happen in terms of performance?’ I think the market will act as if we’re in the first year of a new bull.”

At the moment, it is. Historically, the first years of major rallies provide investors with the biggest boost, with the S.& P. 500 having posted gains of 38 percent, on average, in Year 1 of past bull markets since World War II. True to form, the rally that began on Oct. 3 has already pushed the index 27 percent higher in less than six months.

That surge isn’t the only evidence supporting the view that Wall Street is in a new bull market. Normally, shares of small companies — considered higher-risk but higher-returning assets than blue-chip stocks — tend to outperform the broad market at the start of a new rally. Shares of large, industry-leading companies, by contrast, usually catch fire only after bull markets mature.

Sure enough, small-company stocks have been performing even better than the S.& P. 500 over the last six months. For instance, the Nasdaq composite index, made up of younger and faster-growing companies than are found in the S.& P. 500, is already up more than 31 percent since Oct. 3, while the Russell 2000 index of small stocks has gained 36 percent.

At the same time, economically sensitive sectors like technology and consumer discretionary stocks have been outpacing the broad market since October, which is also typical of the first years of bull markets, Mr. Stovall notes.

He added that if this were the fourth year of an aging bull, defensive areas of the market — like health care, consumer staples and utilities stocks — would be leading the charge. Yet they haven’t been.

Jason Hsu, chief investment officer for the investment consulting firm Research Affiliates, says that even if investors are not convinced that this is the start of a new bull, market psychology is likely to keep pushing the markets higher for now.

“Research on short-term momentum in asset prices says that if you had a strong six months of steady asset appreciation, that tends to drive further price appreciation,” he said.

He added that many investors “did not participate in the fairly speculative, risk-asset rally that began in October.” So, given the occasional herd mentality on Wall Street, these investors could simply be waiting for an opening to jump in. As a result, Mr. Hsu says he thinks that the broad market could keep rallying in the short run, and that there could be continuing demand for riskier, economically sensitive stocks, especially on market dips, he said.

TO be sure, there are different types of bull markets — so-called cyclical bulls that tend to run alongside a single economic expansion, as well as so-called secular bull markets that may last for more than a decade, often containing shorter bull and bear cycles within them. The stock market’s epic run from 1982 to 1999, for instance, was the last big example of a secular bull.

“I don’t think we’ve begun a new secular bull,” says Mark D. Luschini, chief investment strategist at Janney Montgomery Scott. He points out that historically, secular bulls tend to start at price-to-earnings ratios in the single digits, as was the case in 1982. But based on valuations using 10-year average profits, the market’s P/E ratio is above 20.

Doug Ramsey, chief investment officer at the Leuthold Group, also says that while this may be a new bull market, it is what he calls a “noneconomic” rally.

In other words, this bull market — unlike the one that began in March 2009 — emerged after a bear market that did not coincide with an official recession.

What’s the significance of that? “Recessions are what clear the decks for a longer-lasting recovery and drive valuations down to truly low levels from which bigger gains can spring,” he said.

Mr. Ramsey’s research on noneconomic bull markets since World War II found that these rallies tend to be shorter-lived — the average one lasted just 31 months. And they tend to be more muted. While the typical noneconomic bull market returned less than 62 percent, cumulatively, the median bull market that emerged after recessions gained nearly 102 percent.

Of course, given that stocks have gained 27 percent so far in their current rally, that would still leave the market some ample room for gains.

Paul J. Lim is a senior editor at Money magazine.
http://www.nytimes.com/2012/03/25/your-money/bull-market-may-have-much-further-to-go.html?ref=your-money

Crises Equal Opportunities - History Makes Money

 
What $10,000 invested at times of various historical calamities would be worth today?
 
In 1962, the missile crisis brought us close to World War III.  At that time, if you had invested $10,000, the value today would be $156,661.
 
In 1965, we bombed North Vietnam and were attacked in the Gulf of Tonkin.  The value of $10,000 invested then would now be worth $109,602.
 
In 1968, there was a six-day war in the Middle East and five days of rioting in Detroit, the value of $10,000 invested then would now be worth $87,429.
 
In 1980, Iran was holding American hostages, the value of $10,000 invested then would now be worth $48,700.
 
The recession in 1982 caused the market to hit 730 in August and by February the following year the market was up 57 percent to 1150.
 
On October, 1987, the country saw the most severe drop in market history.  $10,000 invested at the bottom of the market on October 20 would be worth approximately $24,000 today.
 
These down markets caused by crises events are opportunities only if you have cash available to seize the opportunity of the moment of the down markets.  If you are caught fully invested in stocks when these events occur and your quality stocks go down, ride them out and stay fully invested as the market always recovers and given time, eventually heads to new record highs.


http://www.sap-basis-abap.com/shares/history-makes-money.htm

Investment Experience and Stock Market History Are Important

Ben Graham's 57 years on Wall Street were most instructive, and he expressed his appreciation to them when he alluded to his "old ally, experience". 

To an important extent, you learn to invest by investing. Too often we have to make the same mistake as others before the lesson is instructive. All of us, it seems, must learn through the school of hard knocks. We would do better to learn from the likes of Ben Graham. 

Graham was a careful student of stock market history, and he placed great emphasis on it. He thought that "No statement is more true and better applicable to Wall Street than the famous warning of Santayana : `Those who do not remember the past are condemned to repeat it.'" Graham could ridicule investors grasp of stock market history, referring to their "proverbial short memories". 

It was Graham's knowledge of the long sweep of stock market history that prompted his view that ". . . the investor may as well resign himself. . .to the probability . . . that most of his holdings will advance, say, 50% or more from their low point and decline the equivalent one-third or more from their high point at various periods in the next 5 years." Historical insight is critical to successful investing. It is only through knowledge of the past that we can tell anything about the future.

Bears That Won't Go Away

Long Term Secular Bear Trends

Four Bad Bear Markets

Bear Markets History (Graphic)

But a bear market isn't all bad news.

Sure, it can hurt when your portfolio takes a hit when stock prices fall. But you'd still better be prepared for the inevitable downturns in the stock market, and remember that the situation is only temporary, after all. In every instance when the overall market dropped, it returned and then grew to greater heights. In fact, the stock market has a 100 percent success rate when it comes to recovering from a bear market! The only thing to remember is that sometimes it takes longer for the bounce-back to occur.

If you follow a long-term approach to investing, then you know that patience is a virtue whenever you're investing in the stock market. It also helps to keep your vision focused on your long-term horizon whenever the market hits some turbulence. By using dollar cost averaging and by investing regularly, you can even make the bear market work for you by taking advantage of generally lower prices with additional purchases. Knowing the market's infallible past record, you can sleep easy -- even when other investors are panicking.

Post Bear Market Recoveries (Australia)

http://spreadsheets.google.com/pub?key=twOYrUjYPau2adIivkDDotg&output=html


Source:
The fight is on for profits
http://www.smh.com.au/news/home/business/money/investment/the-fight-is-on-for-profits/2010/01/26/1264267986069.html?page=fullpage#contentSwap2

The Nikkei Bubble: Can a bear market last for 14 straight years?

The Nikkei Bubble

Can a bear market last for 14 straight years? Well, this is exactly what occurred in Japan, starting in 1991.

After World War II, Japan was devastated-several of its major cities were obliterated and its economy was virtually nonexistent. Due to much effort and hard work, the Japanese economy slowly began to stabilize and recover. Additionally, the United States helped Japan rebuild, and provided capital and military protection, as well. The value of military protection should not be overlooked, as this is usually the highest expense of any government. This benefit allowed the Japanese economy and government run more freely and efficiently.

Factories were quickly built and peasants became factory workers. Middle and upper class men became white collar workers, called salarymen. Salarymen and factory workers were offered lifetime employment. This caused salarymen to have fierce loyalty towards their employers. Most Japanese workers at the time were highly frugal, saving much of what they earned. Many companies merged together to become large industrial and banking conglomerates, called zaibatsu.

The zaibatsu gained their competitive edge by copying and improving Western products and selling them for much cheaper. The cheaper products won Western customers and started to hurt US companies. Tremendous economic growth occurred allowing the zaibatsu to evolve into even larger business alliances, called keiretsu. The keiretsu philosophy was one of cooperation, where all facets of business and government worked hand in hand. As the Japanese stock market soared, the keiretsu purchased each other’s shares.

http://www.stock-market-crash.net/nikkei.htm

"Four Bad Bears" comparison.

Bear Turns to Bull?


October 13, 2009 updated each market day

The S&P 500 closed the day 58.6% above the March 9th low, which is 31.4% below the peak in October 2007.

http://dshort.com/articles/2009/bear-turns-to-bull.html

How Low Can The Market Go?*

How Low Can The Market Go?*
Henry Blodget

Mar. 5, 2009, 4:49 PM59


*UPDATE: After today's 4% drop, the S&P 500 is now at 680, an 11.85 P/E.

EARLIER: On days like today, it helps to look at the silver lining. Here it is: The farther stocks fall, the cheaper they get--and the higher the expected long-term return becomes. Unfortunately, that doesn't mean we don't have a long way to go on the downside.

There were four massive stock bubbles in the 20th Century: 1901, 1929, 1966, and 2000. During each of these bubble peaks, the S&P 500 neared or exceeded 25X on professor Robert Shiller's cyclically adjusted P/E ratio.* After the first three of these peaks, the S&P 500 PE did not bottom until it hit 5X-8X. We're still in the middle of the last one.

The most recent bubble peak, 2000, was by far the most extreme we have ever experienced. In 2000, the S&P 500 by prof. Shiller's measure exceeded 40X (it had never before exceeded 30X). With the S&P 500 hitting 700 today, the PE has now fallen back to 12X. (See chart above.)

Three major bubbles are not enough historical precedent to confidently conclude where the S&P 500 will bottom this time around, but it seems reasonable to conclude that the trough will be in line with--or below--the preceeding lows (Given that we just had the highest peak in history by a mile, it doesn't seem absurd to think that we might be headed for the lowest trough in history by a mile.)

So where are we now?

Based on Professor Shiller's latest numbers, we're at about a 12X P/E. (Prof. Shiller's last update was at 805 on the S&P 500, which produced a 14X P/E. Plugging in today's 700 on the same earnings number, we get about a 12X P/E). The 12X PE compares favorably to the long-term arithmetic average of 16X, but it's still way above the historical troughs of 5X-8X.

So where would the S&P bottom if we hit the previous trough PE lows? It depends how we get there.

If the stock market stops falling and earnings eventually begin to grow again, we would be close to the bottom: The market could simply move sideways for 5-10 years while earnings growth gradually reduced the PE to the 5X-8X range. This is what happened in the 1970s.

Alternatively, the market could just keep dropping, as it did in the early 1930s.

Using Professor Shiller's latest earnings data, here's where the numbers would fall out if the market just kept dropping and 10-year average earnings didn't grow from today's level:

P/E S&P 500 Level

10X 575
8X 460 (highest previous trough low)
7X 400 (average previous trough low)
6X 350
5X 300 (lowest previous trough low)

In short, if the S&P fell straight to the high-end of its previous trough range (8X PE, or 460), it would fall another 35% from today's level (700)

If the S&P fell straight to the low-end of its previous trough range (5X PE, or 300), it would fall another 55+% from today's level.

Here's hoping we don't set a new low on the downside.


--------------------------------------------------------------------------------

* Shiller's "cyclically adjusted" PE takes an average of 10 years of S&P 500 earnings instead of using a single year's. Why? Because the business cycle makes single-year earnings misleading. In boom times, profit margins are high, and P/Es look artificially low (and stocks look misleadingly cheap). In busts, profit margins collapse, and P/Es look artificially high (and stocks look misleadingly expensive--as is the case this year). Shiller's cyclically-adjusted PE mutes the effect of the business cycle and, therefore, provides a much more informative and predictive PE ratio.

Here's a link to Professor Shiller's site, where you can download an Excel spreadsheet with all of the S&P 500 data >

http://www.businessinsider.com/new-low-on-shiller-pe-12x-normal-trough-low-is-8x-2009-3

Today's Bear Market Now Not As Bad As The Great Crash!

Today's Bear Market Now Not As Bad As The Great Crash!
Henry BlodgetApr. 6, 2009, 6:17 AM7

We are happy to report, via Doug Short, that today's bear market is no longer as bad as the Great Crash, as measured by depth-of-decline-over-time. Thanks to the rally of the past month, we've crawled back above the Great Crash trendline.

It's worth noting, however, that the rip-roaring bull market of the past month does bear an unnerving resemblance to a similar pattern in 1931...before the last leg of the Great Crash took the DOW from down 50% to down 89%.

Visit dshort.com for an interactive version of this chart, as well as a bunch of other cool charts and analyses >

140 Years Of Bull And Bear Markets

140 Years Of Bull And Bear Markets
Henry BlodgetApr. 6, 2009, 3:25 PM

Doug Short has created a nice snapshot of 140 years of market history. It's a logarithmic chart, so it shows the impact of percentage rather than absolute price moves, and prices have been adjusted for inflation. Note that the chart is price-only: It does not include the impact of dividends.

Key points:

Bull and bear markets have always been with us (duh)

The market spends about half the time above trend and half below trend (duh)

The market has been above trend for about 20 years (ruh roh)

The trough-to-peak 18-year bull market that peaked in 2000 (+666%) was the biggest in history by a mile (ruh roh)

In the 5-year bull market in the middle of the Great Depression (1932-1937), the S&P jumped 266% (five years is a long time--don't want to miss that)

20 years after the 1929 peak, the S&P traded at half its 1929 value (ruh roh)





Doug short has more thoughts at dshort.com >

See Also:
Today's Bear Market Is No Longer Worse Than The Great Crash!

Historical Bear Market

Historical Bear Market Contractions - The Big Picture

http://bigpicture.typepad.com/comments/2007/04/bear_market_con.html

http://www.sifma.org/research/pdf/EquityOwnership05.pdf

The bear isn't all bad. What exactly is a bear market?

http://www.douglasgerlach.com/clubs/askdoug/bearmarket.html

The Looming Bear

by Douglas Gerlach

Market headlines of recent days are using words that seem tailored to strike panic in the hearts of investors: fear, suffering, carnage.

Starting with the technology stocks of the Nasdaq, and now spreading even to the blue chip stalwarts of the Dow, this market sell-off is bringing us into territory that smells distinctively bear-ish. After enjoying years of great market news, it's unfamiliar territory for many of us.

But as Peter Lynch likes to point out, "When it's 15 below in Minnesota, they don't panic -- they just wait until spring." The market has gone up and down throughout its history, and it doesn't pay to panic when the market declines.

What exactly is a bear market? It's an extended period when stock prices generally decline. It can last for months, or even for years. A bull market is a period when stock prices generally increase. These terms originated back in the 1800s, but no one really knows how or why they came into use, nor why the bull came to symbolize periods of increasing prices while the bear represents downturns.

When you look at the market from a statistical perspective, you can see that it's very common for the market to experience some serious downturns. From 1928 through 1997, the S&P 500 declined in 20 of those 72 years. In eight of those years, it declined greater than 10 percent, and greater than 20 percent in four of the years. And that's not even counting the times that the market has declined greater than 10 percent or even 20 percent in the middle of a year and then recovered!

On the other hand, the S&P 500 has ended the year higher than it started out in 52 of 72 years. In 41 years, the S&P 500 ended up greater than 10 percent, and in 28 years, it closed the year with a 20 percent or greater gain.

But a bear market isn't all bad news. Sure, it can hurt when your portfolio takes a hit when stock prices fall. But you'd still better be prepared for the inevitable downturns in the stock market, and remember that the situation is only temporary, after all. In every instance when the overall market dropped, it returned and then grew to greater heights. In fact, the stock market has a 100 percent success rate when it comes to recovering from a bear market! The only thing to remember is that sometimes it takes longer for the bounce-back to occur.

If you follow a long-term approach to investing, then you know that patience is a virtue whenever you're investing in the stock market. It also helps to keep your vision focused on your long-term horizon whenever the market hits some turbulence. By using dollar cost averaging and by investing regularly, you can even make the bear market work for you by taking advantage of generally lower prices with additional purchases. Knowing the market's infallible past record, you can sleep easy -- even when other investors are panicking.

Goodbye, Bear Market?

http://www.kiplinger.com/columns/value/archive/2008/va0714.htm

"Believe it or not, history offers surprisingly good news about what the stock market will likely do from here. No, history doesn't always repeat itself, but, as the saying goes, it rhymes. So please don't cash in your stocks for CDs until you read the rest of this article. To ignore history would be folly."

"Do things seem worse than they were during other bear markets? If so, it's partly because of our tendency to forget the distant past and focus instead on the recent past. I submit that the events surrounding many past bear markets were at least as frightening as those of this one. I certainly remember the anxiety surrounding the 1987 crash, when the Dow Jones industrial average plunged 22.6% in one day—eclipsing the 1929 crash. I thought we might well enter a depression. Instead, stocks hit bottom less than two months later."

"Yet, soon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average."

How can the market advance so much so quickly when stocks tumble another 11% after hitting the 20% bear market threshold?

James Stack, president of InvesTech Research, says it's because bear markets tend to be "V"-shaped in their final stages. That is, share prices tend to decline dramatically and quickly as investors capitulate, then rebound just as quickly. "Once a bear market ends, the rally out of that bottom is very sharp and very, very profitable," Stack says.

Yes, we all know that averages and statistics can be misleading. After all, the returns above are for the average bear market. What's to say that this will turn out to be an average bear market, with all the bad news still out there?