Kriti Gupta – Bloomberg/Newsroom
Happy Monday!
Friday marked yet another historic moment in stock market history. The S&P 500 declined over 20% from its January high — an intraday bear market. Technically, it can signal a buying opportunity. But bear markets don’t always stop at just 20% declines. The selling can go further. And for the bears, the concern is that the stock market didn’t actually close in bear market territory. It rebounded to end the day flat.
Today’s Chart of the Day looks at the drawdowns (measuring the peak to trough decline) in the S&P 500. By comparison to previous moves, the year-to-date selloff looks relatively muted. In fact, it mirrors moves seen in 1990, 1987 and even 1962. Those are all historical precedents that apply here.
In 1990, a slew of negative headlines and ultimately the start of the Gulf War (and consequently an oil shock) shook the market, as well as being in the midst of an actual recession. In 1987, a flash crash, thanks to illiquidity sunk the market. And in 1962, the Kennedy Slide, as it’s now known, followed years of rapid expansion in the economy and stock market, only to recover after the Cuban Missile Crisis ended.
At the time, the head of the American Stock Exchange said the following “this definitely is not panic selling. We have had a ten-year bull market, and this evidently is the time for an adjustment. Stocks are now getting down to a realistic level.”
Higher oil prices, illiquid markets and an adjustment in valuations not driven by panic with Cold War tensions in the background…sound familiar?
If the stock market is indeed bottoming out, now that it’s declined ~20%, then history suggests the rebound may not take years. The rule of thumb is the shorter the time it takes to get to the bear market, the faster the recovery — especially if you’re not in the midst of a recession. If one materializes, however, then the stock market could drop as much as 40%.
You can catch the Chart of the Day segment at 5:45am NYT this week on Bloomberg Surveillance: Early Edition. Next week, it returns to it’s normal slot at 7:45am NYT. If you have a Terminal subscription, enter G #BTV 4921 in the search bar. If the chart is not visible, it is also attached to the email.
