Whoa, Nellie!

Over the last 37 years, the U.S. stock market has, on average, fallen sometime during any given year, about 14%.  In 2017, it never fell more than 3%.

We’re in make-up time right now.

Having plunged over the last few days, and having lost more points yesterday in a single day than at any time in history, today seems to want to pick up yesterday left off.

Or maybe not.  Earlier this morning, Dow futures were down 303 points. They’ve cut that anticipated opening loss in half, while the S&P 500 and the NASDAQ are, weirdly, now anticipating tiny gains, after also having been down big earlier this morning. It’s just crazy.

Markets, we know, are propelled by fear or greed. Well, greed is hibernating this February morning again, and fear is roaming the streets. At least at this moment. Maybe ten minutes from now, not so much.


What’s happening is technical, mechanical, and psychological in nature. It’s a most unusual “healthy correction.” Volatility is going through the roof.  How sad for those souls who left the market, maybe, years ago and only now, in early 2018, thought it safe to come back. While few of you may in any ETFs that were marketed to make money on shorting volitility, those ETFs aren’t working.  In fact, they are blowing up and taking parts of the rest of the market with them.  Oh, and by the way, have you checked bitcoin lately?  About a month ago, it was knocking on the door of $20,000. Today?  It’s below $6,000.

Please! Stay away from the exotica!

To this boy, the market’s plunge (not bitcoin’s nor the exotic ETFs’) is all the more strange when there is so much good news still coming. My own take on this mess, and my own investing right now, sees this as a healthy (but unhealthy looking) correction and an opportunity, not the end of the world.

Let me share a few charts to give you, I hope, a little perspective and maybe comfort.  I hope not false comfort.











The above chart looks only at years since 1950 and only when the S&P 500 gained 5% or more in January. It then tells us what happened the rest of the year. Answer?  The record shows that, on average, stocks lost some 10.7% during the year, yet ended the year up an average of 24.8%. There were NO negative years.

Of course, some will say that “this time it’s different.” And to those fearful, doubting souls, I would say, “Good luck to you. It may be, but we have no better evidence of likely outcomes than what I share above.”

Now, behold Chart II:







The above chart, from Bespoke, shows that, over the past year, the market (the S&P 500) was, for most of the year, in “the red zone” – or beyond – in relation to historic valuation measures.  The “beyond” describes those times when it went north of the red zone (very expensive), as you can see on the chart.  Well, in just the last few days, the S&P has “reverted to the mean” – that is, it’s fallen back from the stratosphere into fair value – and is now very close to the top of the oversold, green area.  In other words, the market is rapidly approaching “cheapness” again.

Does this mean the market is finished with its hissy fits?  No, once its waters have been disturbed as much as they have (such as in the last week), it can take a while for them to settle down. How wonderful it would be to see a few days when the market does nothing – doesn’t go up a lot or down.  That would be evidence of the beginning of a “scabbing over” the deep wound it has experienced.

Now, let’s look at one final chart.  One that helps us see what has happened after a big market fall followed by an even bigger market fall, such as we saw last Friday (down 2%) and Monday (down 4%). Make sure your read my commentary below. It may, inexplicably, drop out of sight.















(Thanks again to Bespoke for this chart. It’s simply amazing to me that they can – and so well do – access and analyze the kind of data this chart embodies.)

Don’t let the title or size of the above monster chart scare you. It’s simply a chart about what has happened – and gives us an idea of what may happen – when the market plunges at least 2% one day followed, the next day, by a drop of at least 4%. It tells us this in terms of what happens the next day, next week, next month, and next three months.

Most of this data – 28 occasions – go back to the Great Depression, with a few from more modern corrections, like 2008.

There are no promises, of course, that the above chart will perfectly predict what will happen in our case, but the news again is not “end of the world” stuff. In most cases, the market rises the next day, week, month and three months later, from, on average, + .35% to +6.52%, respectively.

No doubt about it, my friends, this is a tough correction. So violent, so big.  It is trying our patience and kindling our fears.  Go back a couple of posts, if you might, and check out that knight on his horse riding to his goal, the Celestial City.

This, too, shall pass.  “Patience gains all,” as St. Teresa said.  Keep the faith, and keep your faith.  This kind of thing can be a great spiritual discipline.



This entry was posted in fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living. Bookmark the permalink.

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