Source:Société Générale


From Société Générale strategist Andrew Lapthorne comes the chart above, and the observation that “It has been 408 days since the last 10% correction in the MSCI World index, the 8th longest period on record.”

As the char above shows, this is just about the median length of time between corrections. The mere fact that we have not had a 10% or worse correction for a long time tells us very little about the state of the secular bull market, but it does make the odds of that 10% correction a little better as time goes on. Note this is an inevitable truth in any periodic event.

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10 Responses to “Over 400 Days Without a Correction”

  1. BoKolis says:

    59% bullish notwithstanding, I’ve never seen it where so many are PISSED that we haven’t had a correction. Then again, I’ve never seen it where there were this many start-up Swan peddlers either.

  2. Concerned Neighbour says:

    I’m not sure why anyone would expect to see these “markets” to go down ever again. It is now de-facto policy of central banks worldwide to see them rise forever and ever. Hell, the S&P 500 “market” hasn’t gone down even 3-4% in well over a year. And invariably it takes a “market” a couple weeks to “plunge” 1%, and then it’s all miraculously made back in 5 minutes the next day.

    • RLMinVA says:

      By my math we had three 3-4 corrections in the S&P in 2013. Not that that changes the point of your comment…but we have had some give backs along the way. The important issue is that we went down by an historically huge amount in 07-09. It is not too unprecedented to see a longer, more protracted move to the upside now.

  3. Rightline says:

    Is this now a secular bull market? When did the thesis change from cyclical bull within a secular bear?

  4. “As the char above shows, this is just about the median length of time between corrections.”

    Did you perhaps overlook all the very short lengths? It appears there are about 13 corrections which took place within 100 days of the prior correction. I count about 7 instances with >400 day intervals, and about 20 with < 400 day intervals. So 400 appears to be well above the median.

    Also, I think a plot of the stats might very well show that the longer the market has gone without a 10% correction, the longer it is LIKELY to go.

    In other words, this may not be like flipping a coin, where the odds of a correction starting are always, say, 2%. It may be that instead of p(Correction)=2%, the actual market dynamics are more like p(Correction) = 1% + 2% / (Number of days without correction). The chaos theory quants will tell you it's all about Levy Flights. The old-timers will tell you it's all about herd behavior during secular bulls on the run up to becoming bubbles. And no doubt the cognitive-bias folks will say that it has a lot to do with recency bias. All different ways of getting a feel for the same elephant in the room.

    • Hence, why I wrote:

      Regardless, we have now gone about as long as it typical between 10 percent corrections. As we noted this morning, sentiment is as bullish as it ever gets (“Investors Most Upbeat in 5 Years With Record 59 Percent Bullish in Poll”).

      A 10 percent correction over the next quarter or two seems like a pretty decent bet.

      • I have tremendous respect for your market intuition, and will believer THAT over a small data set any day. Interestingly, the chart above shows 7 previous runs that have gone for at least 400 days, and while 2 of the 7 ended “within a quarter or two”, I was surprised to see that 5 of the 7 went on for at least 400 MORE days (>800 total) without a 10% correction. I would have expected fewer. I was also surprised that of the 5 runs that lasted at least 800 days, 2 were in secular bull markets but 3 were cyclical bulls within secular bears. A random walk mindset would lead one to expect that the 800-plus runs would all have been within secular bulls, when the market had a stronger upward bias to prevent corrections. One would’ve been wrong!

  5. [...] 400 days and counting without a 10% correction (Big Picture) [...]