The Market

One always wonders what to do in The Market. Especially now with so much confusion, so many factors. Buy? Sell? Stand aside? There are some statistical generalities.

 

The Dow Jones Industrial Average experiences a bull market correction on average roughly every 12 months, according to the WSJ . The Dow is now up approximately 59% from its last correction low on October 3, 2011 and is on its 32nd month without a 10% pullback.

Still a bull market can run for quite a long time without a pause. The longest period without at least a 10% pullback was during the 1990-1997 run, at 82 months, according to the WSJ’s data group. The usually decline of 10% or more has had an averages of 18 months since 1945.

Since the end of World War II (1945), there have been 27 corrections of 10% or more, versus only 12 full-blown bear markets (with losses of 20% +). This equates to one correction roughly every 20 months, according to John Prestbo. The average decline during these 27 episodes has been 13.3% and they’ve taken an average of 71 days to play out.

Since the stock market’s bottom in March of 2009, there have been only 3 corrections: In the spring of 2010 the S&P 500 began a 69-day drop of roughly 16%. The widely referenced summer correction of 2011 lasted for about 154 days and almost became a bear market. The correction during the spring of 2012 set up one of the greatest rallies of all time, although it was barely a real correction, sporting a peak-to-trough drop of just 9.9% in just under 60 days.

Bull market rallies in between corrections – and there have been 58 in the post-war period – tend to run for an average of 221 trading days before being interrupted and gaining an average of 32%.

But remember, most corrections do not become crashes, and every single one of them have turned out to have been great buying opportunities in the fullness of time.