Food for Thought on the Stock Market

It’s been over a year since the stock market corrected (defined as a decline of 10% or more).  It’s been over 8 years since the last bear market (defined as a decline of 20% or more).  It’s been over 9 months since the market had a decline of 5% or more.  For those interested in the current stock market, consider these facts from American Funds about stock market declines/volatility.

The American Funds did a study of 116 years of stock market declines – 1900-2016.  The market, as represented by the Dow Jones Industrial Average, has had on average one correction (a 10% or more decline) each year.  And the study shows that a bear market occurs on average every 3 1/2 years.  The study further found that the market has a decline of 5% or more on average 3 times a year.

The point is, the stock market is overdue for a correction, a decline of 10% or more, and long overdue for a bear market, decline of 20% or more.  The last bear market, which I will call the “Obama Mega Bear Market” resulted in a 58% decline in the S&P500 before it finally bottomed out in March 2009.  Also, the Obama Mega Bear Market lasted 18 months compared to the average bear market duration of 341 days.

The stock market has gone almost straight up since November 4, 2016, and the last decline of 5% or more occurred over a very brief 18 day period, last June.   The market seems to have lost some momentum.  The S&P 500 peaked at 2396 on March 1st this year and has since traded slightly lower (about 54 points lower) to close today at 2342 and change.

The question to ask is whether this is a) the start of an overdue 5% or more decline, b) an overdue 10% or more correction, c) the beginning of a long overdue bear market, or d) just a pause on the way to new highs?  Who can say for sure?  Just food for thought.  Might want to pause and think about it before making any new investments.  Always  a good idea to keep some cash on the sidelines, just in case.

–Staff Writer