This happens all the time

What’s taking people’s breath away about this year’s stock market sell-off is probably some combination of three things: A) we’re unaccustomed to it, we’ve been spoiled for years, and B) it’s global in nature (and some would say global in origin), and C) the speed of the selling is incredible, by any historical standard – it feels like a whoosh straight down.

But as disorienting as this all feels, the truth is that double-digit drawdowns from prior highs in the S&P 500 are not an anomaly – they are the norm, statistically speaking. In fact, this happens during 2 out of every 3 years.

My colleague Michael Batnick has run the numbers…

  • The average intra-year decline is 16.4%. This current decline might feels worse due to the speed at which it’s happening, and because it’s occurring right out of the gate.

  • Double digit declines are to be expected, 64% of all years experienced them.

  • It’s not unusual for those double digit declines to be of little importance. 57% of the years with 10% drawdowns finished positive.

  • Stated differently, 36% of all years saw a double digit decline and still finished positive.

  • Drawdowns of 20% or more have happened 23 times, or 26% of all years. On five of those 23 occasions, stocks still ended up positive on the year.

He’s also got a great pair of charts showing the decline in each year along with that year’s closing gain or loss. This is a very powerful thing to be aware of given the cacophony of fear-mongering you’re coming into contact with right now.

Head over and check it out:

What’s Going On? (The Irrelevant Investor)

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web
  1. “What’s Sheri Reading” 2016 Reading Challenge commented on Feb 02

    […] This happens all the time (Josh Brown) What’s taking people’s breath away about this year’s stock market sell-off is probably some combination of three things: A) we’re unaccustomed to it, we’ve been spoiled for years, and B) it’s global in nature (and some would say global in origin), and C) the speed of the selling is incredible, by any historical standard – it feels like a whoosh straight down.But as disorienting as this all feels, the truth is that double-digit drawdowns from prior highs in the S&P 500 are not an anomaly – they are the norm, statistically speaking. In fact, this happens during 2 out of every 3 years.  […]

CFT_Banner