5 must-see stock correction and bear market statistics that will relax your mind | Business news

There is nothing embellished here: the investment community is going through a difficult year.

As of the closing of the call on May 18 the benchmark S&P 500 (SNPINDEX: ^ GSPC) was the second worst start of the year (95 trading days) in history – a decrease of 17.7%. Widely followed Dow Jones Industrial Average (DJINDICES: ^ DJI) not much better, with a drop of 13.3% since the beginning of the year. These double-digit declines mean that both indices are officially included correction area.

It was even harder ice for stock growth Nasdaq Composite (NASDAQINDEX: ^ IXIC), down 27% since the beginning of the year and 29% after reaching a record high in November. Given its decline of more than 20%, the Nasdaq is firmly in the hands bear market.

During stock market and bear market adjustments, it is not uncommon for volatility to rise, or the emotions and determination of investors to be challenged. I can tell you firsthand that I felt completely depressed during my first bear market downturn as an investor a little over two decades ago, during the dotcom bubble.

But after nearly a quarter of a century of working on Wall Street, I learned that the light at the end of the tunnel still shines brightly, even on the darkest days of the market. Below are five stock corrections and bear market statistics that I believe every investor should be familiar with. This is a statistic that will ease your mind, even during sharp one-day sales.

1. Double-digit amendments occur on average every 1.85 years

The first thing to understand about stock market and bear market adjustments is that they will happen, whether we like it or not. Just as the Federal Reserve cannot prevent a recession, so too can investors keep bulls in the stock market indefinitely.

Since the early 1950’s S&P 500 there were 39 individual reductions of at least 10% from the recent high. It turns out for a double-digit correction percentage once every 1.85 years. Although Wall Street did not follow the averages, the correction, which began earlier this year, was just in time, relative to the historical average.

As you will see in the following paragraphs, the inevitability of a fix is ​​not a bad thing.

2. A typical correction lasts only about six months

One of the most important things to understand about the double-digit S&P 500 reduction rate is that they are often short-lived. Although some one-day fluctuations during corrections may be vague, the uncertainty that causes corrections and bear markets tends to play out quickly.

Excluding the current correction (because we are not sure how long this will last), 24 of the 38 double-digit S&P 500 declines since the early 1950s have found their last place in 104 or fewer calendar days (approximately 3-1 / 2 months). Another seven of these corrections / bear markets reached their minimum from 157 calendar days to 288 calendar days (i.e. five to 10 months).

By comparison, only seven double-digit declines over the past 72 years – five of which were bear markets – took more than a year to find their bottom.

Taken as a whole, the average correction / bear market since the early 1950s lasted 188.6 calendar daysor about six months.

3. The amendments of the modern era are, on average, shorter by a whole month

But let’s delve into these corrective data, because it has changed markedly over the last 35 years.

Beginning in the mid-1980s, Wall Street began to transition to digital mode. As computers have become commonplace in marketplaces, the information gap between Wall Street and Main Street began to close. By this I mean that computers have begun to democratize the flow of information to John and Jane K. Investors, thereby reducing the role of rumors and / or lack of information in prolonged downturns in the market.

Since the beginning of 1987, or what I arbitrarily call the “modern age” for the stock market, there have been 17 double-digit declines in the S&P 500. Only four of those 17 declines have lasted more than 104 calendar days, including the current correction is 135 calendar days (as of May 18). Of the previous 16 fixes, their average duration was 155.4 calendar days, or about five months.

In other words, improving the flow of information on Main Street has reduced the average correction over the past 35 years by a full month.

4. The number of bull market days exceeds the number of days spent on correction by about 2.6 to 1

That’s where everything gets really interesting.

In total, for more than 72 years, the S&P 500 has spent 7,303 calendar days (about 20 years) on the correction. The dot-com bubble (929 calendar days), the oil embargo crisis of 1973-1974 (630 calendar days), the inflationary downturn of the early 1980s (622 calendar days) and the Great Recession (517 calendar days) together account for 37% of the all calendar days spent in recession for more than seven decades.

For comparison, 19,132 calendar days since the early 1950s have been spent in the bull / expanding market. No matter how many adjustments or bear markets endure Wall Street and investors, history has convincingly shown that bullish markets last disproportionately longer. In fact, every noticeable decline is the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 eventually the bull market rally was erased.

5. Keeping the S&P 500 tracking index for 20 years has been a guaranteed profit

Finally, how long you keep your investment is usually far away … far away… more important than what price you buy.

According to data published annually by Crestmont Research, patience has paid off well for investors over time. Crestmont studied the S&P 500’s 20-year total income (i.e., including dividends) for all 103 graduation years between 1919 and 2021. for 1968-1987

A Crestmont study found that the S&P 500 there has never been a negative 20-year total return. In fact, there were only two final years out of 103 (1948 and 1949), where the average annual total return for the 20-year period was less than 5%.

At the other end of the spectrum, more than 40 final years delivered average annual total returns ranging from 10.8% to 17.1%. The simple point is that patience and perseverance are often generously rewarded on Wall Street.

While corrections and bear markets are inevitable, it will also pass.

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