Today was the worst day for the S&P 500, dropping -3.09%, since October 10th of this year. You probably thought I was going to write the drop was the worst in a year or sixteen months ago. A drop of -3.09% is a pretty nasty one. It seemed really bad, didn't it?
The fact is it was the fourth worst drop of the year. The worst was a drop of -4.10% on February 5th. The second was on February 8th when the S&P 500 fell -3.75%. Third was the drop I mentioned in the first paragraph was on October 10th when the S&P 500 fell -3.29%.
For 2018, there have now been 20 drops of more than -1%. Of those, 10 or 50% were for losses of more than -2%. 20 drops of more than -1% seems like a big number but is it? The answer is not even close.
You see the issue is investors got spoiled in 2017 as there were only 4 drops of more than -1% for the entire year. It is almost laughable that we have had as many losses of more than -1% this month as we did in all of 2017. So what is the norm in terms of -1% losses, this year or 2017?
Unfortunately, the answer is that the norm is 2018. 2016 saw 22 drops of more than -1%. 2015 saw 33 drops. 2014 was 19 while 2013 was 2017. Last in our way back machine, there were 20 drops in 2012.
So now that we know this year is the norm, hopefully this let's you know that in six months or a year this volatility will be a distant memory unless we enter a period like 2000-2002 or 2007-2009. The 2000-2002 period was defined at the Tech Bubble and valuations were very stretched unlike now. 2007-2009 was the housing crisis and currently the banks are in great shape.
The real question that needs to be answered is when will the stock market no longer be the lead story in the news? Simple when we conclude the "clustering" we are now seeing with losses of more than -1%. Losses of more than -1% typically are either a one off event within a calendar month or they cluster.
January of 2018 saw only one event a drop of -1.09% on January 30th. Then that loss carried into February when we saw five days with losses of more than -1%. March then saw another 5 events. April saw 3 events. Then May and June each had one event. There were no losses on the S&P 500 of greater than -1% for July, August or September. Life was good again and so was the S&P 500 as it rose 7.81% in those months.
As quickly as the loss events come, they go. Therefore, the most important thing to watch for is -1% drops to no longer being a daily occurrence. As you see that happen, then that would be a great time to nibble on some new buys for the portfolio.