The blue line in the top panel is the S&P 500 index price.
The gray bars in the second panel are the number of days prior to the start of a 5% correction.
The yellow bars in the third panel are the number of days prior to the start of a 10% correction.
The red bars in the fourth panel are the number of days prior to the start of a 20% correction.
The Takeaway: “Not every crack becomes a gorge; not every gorge becomes a chasm. However, every chasm starts from a crack.” - Willie Delwiche
It was only last week I wrote a daily number note that the S&P 500 had a 5% correction. Seven days later, the S&P 500 has now pulled back by 10.1%. The last time we experienced a 10% correction was in October 2023, which was 341 trading days ago. On average, we typically experience a 10% market correction approximately 1.1 times each year.
So that's it for the year? Maybe…
But there is always the possibility of moving to the next stage, which is a 20% decline, which is often referred to as a bear market. On average, bear markets occur only about 0.3 times per year, and we've already witnessed two bear markets over the past five years.
When I dug into the math a little deeper, I found that since 1950, there have been 25 instances of 10% market corrections that have not transitioned into a bear market. This means that only 30% of the time does a 10% correction lead to a bear market.
While there is a higher probability we won't enter a bear market, the market will ultimately do what it wants. I can only follow the data in front of me.
What are your thoughts on where this current correction might end? Do you think we could enter a bear market?
Grant Hawkridge | Chief Aussie Operator, All Star Charts
ICYMI: It’s been a brutal month for retail, but Jeff Macke’s been here before — and he knows exactly what to do next. Watch this video of Jeff and JC to hear his updated retail playbook and see how he’s positioning in this downturn.
If you find my content valuable, I would greatly appreciate it if you could share it with your friends, family, and colleagues. Your help in spreading the word is invaluable in supporting our work. Thank you to all of you who share!