Wealth Management Institute from Adamstown, Maryland Help Coach Developmentally Disabled Students at the Adventure Team Challenge in New York.
August 24th, 2015
Last week and this morning has been some of the toughest days in the US Equity market for the past several years. As we sit here this morning the S&P 500 index is down about 13% from its May peak of 2134.72, with the vast majority of that in the last two trading days and this morning. So I wanted to put some things into perspective. If we compare the US Equity market to a water level in a pool with different levels, such as 5%, 10%, and 20% down (Source – Dorsey Wright and Associates):
- The 13% down number officially puts us in the area of a “10% market correction”
- The last time we had a 10% correction was July 2012
- On average, the market will experience three 5% corrections per year and one 10% correction per year. Since the US Equity bottom in March 2009 we’ve had 20 pullbacks of at least 5%.
- On average, you get another 2.12% downside after the day you reach 5% down. What is reassuring is that number seems to be pretty steady across different bull markets (2003-2007 and even 1982 – 1999, excluding October 1987).
- On average, during the 2009-present rally it’s taken 7 days after reaching 5% down before the actual low is reached.
- While the average is 7 days from hitting the 5% pullback mark to finding a bottom, the longest stretch was 24 days (November 2011) and the shortest was zero days multiple times.
- Only 26% of the time after a 10% correction has it lead to a 20% bear market event.
- Currently, from our 36,000 foot view looking down, domestic stocks are still by far the strongest asset class with no weakening. (The six major assets classes are domestic stocks, international stocks, bonds, cash, commodities, and currencies.) International stocks have weakened and bonds have gained strength.
Sell offs like what we are going through now have historically been rare and happen once a year. Although past actions and performance are not an indicator of future results, if your investment time horizon is 3-5 years or longer it might be a good time to weed out weak holdings, look for stronger holdings that are extremely oversold and wait for the turnaround to buy. These are the actions we are taking in our discretionary fee-basis accounts.
I hope this note has given you some perspective on the current sell off. If you have questions about your portfolio, please don’t hesitate to call or e-mail. I can be reached after 5 PM on my cell at 240-446-2921.
All the best,
 The S&P 500, or the Standard & Poor's 500, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 indexcomponents and their weightings are determined by S&P Dow Jones Indices.
 a market in which share prices are rising, encouraging buying
 a market in which prices are falling, encouraging selling