Stock market drawdowns are normal. They’re never fun, but they are a routine occurrence. As of market close on October 11, 2018, the S&P 500 Index was only 6.9% off its recent high from September 20.
Friday, March 9th marked 9 years since the US stock market bottomed during the Great Recession of 2008-2009. We have witnessed excellent stock market and economic growth since those dark times, leading many people to ask the question: “How long can this expansion/rally continue?”
Before we answer that question, a short stock market history lesson is in order. While the US stock market has in fact rallied an incredible 380% since the stock market bottom (as measured by the total return of the S&P 500 Index), it has not been without significant drawdowns:
- From July 7, 2011 – October 3, 2011, the S&P 500 Index lost 18.4%. During that same time period, the global stock market (as measured by ticker ACWI) lost 22.5%.
- From May 19, 2015 – February 11, 2016, the S&P 500 Index lost 12.8%, while the global stock market was down 19.1%.
So, there have been “breathers” (that’s a nice way of putting it) during this period of sustained economic and stock market growth. In other words, we have taken our lumps along the way.
Quiz question: when was the last time initial jobless claims were as low in the U.S. as they are today?
Think of that: by this metric, it’s been nearly 50 years since the U.S. labor market was this strong. The headline unemployment rate has been steady for a few months at 4.1%.
The initial jobless claims report is released weekly by the U.S. Department of Labor. “This report measures the number of jobless claims filed by individuals seeking to receive jobless benefits.” The latest reading came in at 210,000:
As I write this, it looks like the U.S. stock market (as measured by the S&P 500) will finally get something that happens, on average, about once a year: a 10+% percent drop—the definition of a market correction. The last time this happened was two years ago, ending in February of 2016. The drop that tends to stick in our minds was a whopper—the Great Recession drop that caused the S&P 500 to drop more than 50%--so many of us today probably think corrections are catastrophic. They aren’t. More typically, they last anywhere from 20 trading days (the 1997 correction, down 10.8%) to 104 days (the 2002-2003 correction, down 14.7%). Corrections are unnerving, but they can be a healthy part of the economy—for a couple of reasons.
Today's post is drawn directly from the work of Dr. Ed Yardeni of Yardeni Research. Yardeni is an excellent provider of independent investment and economics research. In his most recent blog post, Yardeni highlights some of the key data points highlighting the global growth story occurring right now.
Media headlines focus on the news of the day. The key word there is "day". These are typically issues that will cause a firestorm for a brief period of time, and then go off into the dustbin of history. Fine, let them cause a ruckus.
Sure, sometimes the news of the day can stretch out to become news of the week. But really, most of the media attention is focused on issues that are here today and gone tomorrow.