History shows latest stock market swoon may be ending soon

Stock SectorApril 4, 20186min10


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Spotify made its Wall Street debut in an unconventional way Tuesday. The music giant used a “direct listing” on the New York Stock Exchange that will allow the company’s early investors and employees to sell as many shares as they want whenever they want. (April 3)
AP

Falling stock prices cause financial pain and emotional distress. And right now, investors are feeling blue as the U.S. stock market is mired in a “correction,” a period of declining prices that knock prices down 10% to 20%.

So how much longer will the current slump last, and how big a drop will it be?

A look at history provides some answers — and some comfort. The average drop suffered by the S&P 500 stock index is 14.2% in corrections since 1990 that were not accompanied by a recession or followed by a bear market or 20% drop, according to data from New York-based investment firm Strategas Research Partners.

The large-company stock index, which has been bouncing in and out of correction territory since early February, is currently 9% off its Jan. 26 record high. That suggests the current downdraft may not be over, but the bulk of the declines have already occurred.

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The current correction began at the market peak in late January, which means it already has lasted two months and one week. That’s closing in on the length of the average correction, which typically lasts about 2½ months.

If past history provides a roadmap of how these short-term market dips play out, this downdraft could be nearing its end.

So what do investors have to look forward to once stocks stop going down? A strong rebound, Strategas data show. The S&P 500 has posted average gains of 16.5% three months after the end of corrections since 1990 that weren’t caused by an economic downturn.

If history repeats, that’s worth waiting for.

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The nine-year stretch of rising stock prices won’t last forever. So now’s a good time for investors to bear-proof their 401(k)s before the next financial storm.
USA TODAY

 

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