Over the past few years, we’ve experienced a very strong bull market with virtually no sizeable pullbacks. So we wanted to compare the recent market action to the market's movements over the past 20 years. In doing so, we can put the current market into perspective, and see if the recent years have actually been outliers.
For our study, we researched the number of 5% and 10% corrections that have occurred over the past 20 years in the S&P 500. And starting in 1995, we counted the number of trading days it took for the S&P to correct 5% and 10% from the high point of its most recent rally.
We sorted the results into two time periods: 1995 to 2011, and 2012 to present. This allowed us to compare the frequency of corrections over the first 18 years to the last 3 years.
Over the first 18 years of the study, the S&P had a total of 200 5% corrections. In that same time period, the S&P had 48 10% corrections with 84% of them occurring less than 266 days from the previous correction.
But over the past 3 years, the S&P has had just 10 5% corrections. And we've had only one single 10% correction in the past three years, with a current streak of over 700 days since the last 10% correction.
So what's the takeaway here? Simply that the market has experienced far fewer pullbacks in recent years as compared to the previous couple of decades. Does this mean that a huge market correction is imminent? Not necessarily. But it does show that the volatility of the market has contracted significantly. If we had to guess, we’d bet that over the next 17 years, the frequency of corrections will pick back up, on average.
If you want to check out this study any further, click here. Lots of great research in the show archives.
I’m Chris Butler. Thanks for watching this Market Measures Notebook!
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