10% Monthly S&P Declines Are Rare
By Barry Ritholtz - May 27th, 2010, 10:00AM
10% monthly S&P declines are very rare – 30 out of 988 months (we’re right on the cusp as of yesterday’s close). Typically – not always – the next month sees a good snap-back.
As of this minute, we are down 8.55%.
The last 10% monthly S&P decline was February 2009. The next month saw quite the snapback: Up 8.5%, on the way to a 75% gainer.
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May 27th, 2010 at 10:11 am
However, corrections after the only other 2 occasions of an 80% Plus Bull after a major bear market average 34%?
May 27th, 2010 at 10:17 am
Per the chart, the months following an 8.55% + – decrease don’t look so hot.
So, over the full 988 months, what do the months following 8% to 9.5% losses look like?
May 27th, 2010 at 10:49 am
maybe true over 988 months but the data shown above indicates that since 2007 things maybe different and the takeaway is not as strong as you suggest?
May 27th, 2010 at 10:50 am
So, Barry, are you still all (or almost all) cash?
Lots of people getting panicky these days.
May 27th, 2010 at 10:52 am
They look pretty unrare in that graph……time period and environment count for everything.
May 27th, 2010 at 11:03 am
This seems somewhat arbitrary — 10% declines that happen to coincide with calendar months. It would be interesting to also look at the 10% declines that occur within 21 market-days but don’t fall on monthly boundaries. Also, the S&P index was first published in 1957, so how can you go back 988 months?
May 27th, 2010 at 11:11 am
I don’t mean to be slogging Barry, but this comment is similar to what brokers and strategists might send out. It says everything, yet nothing. Note that BR has NOT made a call here in any specific way. He has only highlighted what has occasionally occurred in the past. Why the brokers like to use comments like this is because it allows them to go back and highlight that they “called a bottom” if a rally occurs, but if it doesn’t, they can simply say they were providing objective data.
This is NOT a call. And as far as we should be concerned, BR is still all cash until he backdates otherwise.
May 27th, 2010 at 11:17 am
We’re in for adoozy of a bounce.
Can a professional money manager miss this bounce to SPX 1140, even if he thinks we’re headed to 850 in the next couple of months?
May 27th, 2010 at 11:24 am
“Stocks rally on China commitment to European investments”. To paraphrase Hugh Hendry “What else can you expect them to say”. China announces liquidation of European investments anticipating Euro collapse? Europe is China’s largest export market – a tumbling Euro doesn’t make things better for them.
May 27th, 2010 at 11:45 am
3% is not ‘very rare’
It’s not even rare.
Regards
May 27th, 2010 at 11:57 am
What does this thread tell us? Are people more concerned with missing “Easy Money” from a bounce than protecting capital? Bulls remain stubbornly bullish after the market has rolled over. This is a classic sign of bad things to come.
I wrote in an earlier post that I was looking for the Feb 8 low of 1056 SPX to hold and see a run to 1140 to form a right shoulder. If you think technical analysis is voodoo science, then try this one: the selloff just did not feel panicy enough. We were down around 30 spx points on Tuesday and closed above 1056. I would have felt the emotion of a low if we were down 65 SPX points and completed a Fibonaci 38.2% retracement of the 3/9/09 to 4/26/10 rally down to 1008 on the SPX and then closed above 1056.
All the why’s and the targets do not matter. I just did not feel the drop on tuesday was capitulation. It felt like July of 2008. Painful enough to notice, but, none of the clients were calling to sell.
May 27th, 2010 at 11:57 am
Is it time yet?
The market has lots of new walls of worry to climb.
May 27th, 2010 at 12:04 pm
Cynic_FA Says
Re: Capitulation
I had the same impression. Put/call ratios got into the capitulation zone but it didn’t feel that way.
May 27th, 2010 at 12:22 pm
@JDinCT
“Can a professional money manager miss this bounce to SPX 1140, even if he thinks we’re headed to 850 in the next couple of months?”
A short term trader scrambles to keep up with a market reversal. The real managers of BIG money create the market reversals. If this bounce is going to end badly, the smart money will be selling large positions into strength. The weak holders and “Sacrificial Retail Investors”" will do what they always do and continue buying after the market has lost momentum and rolled over.
May 27th, 2010 at 12:30 pm
JDinCT – Try this chart for insight into put/call ratios.
It compares a 5 day ratio(red) to a 60 day ratio(blue) and shows an inverse graph of the spread at the bottom. Peak in the spread in April was a week ahead of the market high.
http://stockcharts.com/h-sc/ui?s=$CPCE&p=D&b=5&g=0&id=p53052703204
Maybe I am Sybilled by this crazy market. I have accumulated way too much client cash since January, so I look at the pullback and put/call numbers and buy. My other self believes a test of July, 09 or a 50% retracement to 944 SPX is a considerable risk. It just does not feel right when every client I call wants to get in for the bounce.
May 27th, 2010 at 12:44 pm
Me thinks Barry doesn’t want to commit himself. If he says he’s back in the market again, in order to cash in on the rally he’s hinting about, and the market goes bust, then he has to admit his failure publicly. If he says he’s all in cash, and the market takes off and he missed the rally, then he is publicly admitting to failure also. Maybe he’ll admit to nothing, and then, once the market does whatever it’s going to do, he’ll say he invested that way. In other words, we’ll just have to believe him after the fact. It worked for Hank Paulson, when he testified before Congress in order to take complete control of the economy.
May 27th, 2010 at 1:00 pm
@Everyone
Allow me to set the record straight: I mentioned to Barry in passing that 10% monthly declines in the S&P500 are about 1-in-33 events (30 out of 988 months). It was just an observation, nothing more, based on the fact that at the close last night we were at -10.01 for the month of May. I drew no inferences from that simple observation, and I don’t think BR did either. It’s just a point of interest, nothing more, as is the fact that such monthly declines are often followed by bungee-cord recoveries.
There are no lines to read between, in my opinion, or at least I didn’t intend there to be. It was nothing more than an observation on my part that BR thought was worth putting out there.
Sometimes a cigar is just a cigar.
May 27th, 2010 at 1:05 pm
[...] 10% monthly declines are rare for the stock market. (Big Picture) [...]
May 27th, 2010 at 1:12 pm
“The last 10% monthly S&P decline was February 2009. The next month saw quite the snapback: Up 8.5%, on the way to a 75% gainer.”
Well you’d have to be a fool to sit this next move up, I suppose. Such a fool am I.
May 27th, 2010 at 3:06 pm
http://bit.ly/bvmfyL
On the monthly time frame, I examined asset class performance after a really bad month (5 asset classes since 1972, equities since 1900).
The take-aways from this study were:
- It does not pay to buy an asset class after a really bad month (worst 2% of observations) for the following 1 month.
- 12 Months later the return is not much different than average.
- 3 and 6 month returns, however, are stronger. You pick up on average about 3-4% abnormal returns buying after a terrible month (that is around 20% annualized).
May 27th, 2010 at 4:37 pm
[...] Barry Ritholtz notes, 10% monthly declines are pretty rare. But when they do happen, they’re typically followed by [...]
May 28th, 2010 at 10:21 am
Feb wont be a down 10% month. next month will be and then you can begin the rally off 1000, if/when capitulation is marked by VOLUME
May 28th, 2010 at 10:23 am
too many stocks trading above 200 day (almost half) for this to have been the double fisted buying oppty.