Tags: stock | market | correction | investing

Historical Data Say to Expect More Downside in Stocks

Friday, 28 August 2015 11:19 AM

It seems so long ago now but earlier this week, the S&P 500 was in the midst of a freefall. The index fell more than 11 percent in just five trading days. That’s an unusually large down move but it’s not unprecedented.

Data for the S&P 500 index dates back to 1928. Since data became available, we have seen 26 down moves like that. Almost every occurrence was at the beginning or in the midst of an historic bear market like 1929, 1973, 2000 or 2008. Twenty times, 76.9 percent of the time, the index was lower one month later. Based solely on history, probabilities favor additional downside in the S&P 500.

The recent bounce back in price is common in stocks. Often a large drop brings in new buyers. Some buyers are acting based on hope that the decline is just a dip in a bull market. Other buyers are locking in profits from short trades they opened before the decline. We never know why buyers appear after a large decline but we do know they often enter the market.

From history, we also know that short-term bounces in the S&P 500 after a large decline are almost always reversed.

Nothing in the news has changed from a week ago. China and Europe are still confronting economic problems. The U.S. Congress must still raise the debt ceiling within the next few weeks, a repeat of an event that became known as the fiscal cliff a few years ago. These problems are unlikely to be corrected quickly and news events related to these issues are likely to push stocks lower before the end of the year.

Now is a good time to position your portfolio for a bear market.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
MichaelCarr
It seems so long ago now, but earlier this week, the S&P 500 was in the midst of a free-fall. The index fell more than 11 percent in just five trading days. That's an unusually large down move but it's not unprecedented.
stock, market, correction, investing
289
2015-19-28
Friday, 28 August 2015 11:19 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved