History of Sharemarket corrections – An Anatomy of equity market corrections

There has been lots written placing the current US stockmarket correction into a historical context.

The analysis of this blog draws on recent analysis undertaken by Goldman Sachs.

As you know, 2018 started out as the strongest start for global sharemarkets in over 30 years. The S&P 500 was up over 7% at one stage during January 2018.

The US equities bull market has been going since March 2009. This is amongst the longest period in history without the US sharemarket entering a bear market. The US sharemarket is up over 300% since 2009.

A bear market is usually considered to have occurred when sharemarkets fall by more than 20% in value.

A sharemarket correction is a fall in value of between 10% and 20%.

Volatility was at historically low levels over 2017. The US sharemarket, as at the end of January 2015, was up for 15 consecutive months and endured the longest period since 1929 without falling in value of more than 5%.

The fall in early February ended 499 trading days of the market not incurring a fall in value of more than 10%, which is amongst the longest stretch in history.

Records have been set and then broken!

 

With regards to bear markets and corrections, Goldman Sachs had some interesting analysis.

Corrections

There have been 22 corrections since 1945 of over 10%, and many more of less than 10%. The average correction is 13% over 4 months and takes 4 months to recover.

Bear Markets

There have been 14 bear markets, the average fall in value is 30% over 13 months and take 22 months to recover.

 

My own thoughts

Generally a bear market (i.e. 20% or more fall in value) does not occur without a recession (a recession is often defined as two consecutive quarters of negative economic growth).

The key forward looking indicators, such as an inverted yield curve, significant widening of high yield credit spreads, rising unemployment, and falling future manufacturing orders are not signalling a recession is on the horizon in the US.

Therefore, if you are playing the odds, the current correction might have further to run but it is unlikely to turn into a bear market.

 

Please see my Disclosure Statement

 

6 thoughts on “History of Sharemarket corrections – An Anatomy of equity market corrections

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