The stock market has been quite jittery over the past week, and although we keep a good amount of cash on hand, that makes me jittery, too.  I don’t usually watch the market returns everyday, but when the market sinks -10.1% in a couple weeks – official counting now as a ‘market correction’ – that gets my attention.  I know that the market was on quite a roll over the last 14 months – the so-called ‘Trump Bump’ – but I hoped with the corporate tax reform approved, the market might have a steady 2018.

To put this latest dent in the market in perspective, I did a quick peak at S&P 500 history since the Great Recession.  I looked at every market downturn greater than 5% of the S&P 500 value and found only 5 other episodes like this one.  Here are the 5 periods, how much the market declined, and how long it took for them to hit bottom (monthly data).  I ranked them in order of severity.

• -17% Apr 2011 – Sep 2011 (5 mos)
• -13% Apr 2010 – Jun 2010 (2 mos)
• -9% Jul 2015 – Sep 2015 (3 mos)
• -7% Mar 2012 – May 2012 (2 mos)
• -7% Nov 2015 – Feb 2016 (3 mos)

The Great Recession bottomed out in February of 2009, so to see 5 downturns is probably not too surprising.  What is surprising, perhaps, is how severe some of them have been.  For the year in 2011, the S&P 500 finished the year down only -2%.  Yet, I frankly have little recollection of the 17% market collapse in the middle of the year. 

Similarly, 2010 was a terrific year for the market overall (+15%) – even though the S&P 500 fell -13% in the spring of that year.  Importantly, none of these years turned out to be terribly bad.

Which brings us to the S&P 500 collapse between October 2007 and February 2009.  During this 17 month period, the index cratered – losing 53% of it’s value.  It took until March of 2013 for the market to fully swing back to it’s previous high. 

Of course there is no 100% certain way to tell if what we are seeing now is the start of a huge market collapse, or just another several month correction on the way to continued growth.  As I posted last year, this is already the second longest bull market in history and we are certainly due for a down year..   

We carry about 3 years of spending money in cash, so other than some stock options that have to be exercised on an annual schedule, we are largely insulated from most market machinations.  This spending buffer ensures that I don’t do anything stupid with our portfolio that I might regret later.

Still, the volatility in the market does get me concerned that we may be seeing something more than a normal downturn.  I wouldn’t predict that happening right now because I think global economics are pretty solid right now, but it is certainly in the back of my head.

What’s your prediction?  Will this soon pass (months)?  Or, be the start of something more ominous?

Image Credit: Pixabay

Updated for the severe drop that took place on publication day 2/10/18