Looking To The Other Side of The Bear

March 17, 2020

Market Blog

The indiscriminate selling continued yesterday, with one of the worst days in stock market history. Fears over the potential impact of COVID-19 (coronavirus) have led to one of the steepest sell-offs in history, rivaling what we saw in 1962 and 1987.

With the S&P 500 Index down 30% from the all-time highs set less than a month ago on February 19, it is quite clear the stock market is voting on a significant economic slowdown over the coming months. Historically, during bear markets we have found that stocks pulled back 37% on average during a recession and 24% on average if a recession is avoided. With stocks currently down right near the middle of this, the economy could be about a coin flip to going into a recession or not. We discuss this idea and more in our latest LPL Market Signals Podcast.

What happens next? “Clearly no one knows how bad things could get and when stocks will ultimately bottom, but we feel we are getting close,” explained LPL Senior Market Strategist Ryan Detrick. “The good news is a year after previous market corrections end, as scary as they all felt at the time, stock performance has historically been quite strong, higher more than 90% of the time.”

As shown in the LPL Chart of the Day, since 1980, there have been 31 other 10% corrections or more for the S&P 500, according to data from our friends at Ned Davis Research.  We’d like to stress, we don’t know when this weakness will end, but if we are close, the average return after a correction ends has been more than 23% on average and higher more than 90% of the time.



View expanded chart.




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