Stock Market Jitters – Down -10%

Screen Shot 2018-02-08 at 11.05.18 AM

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

9 thoughts on “Stock Market Jitters – Down -10%

  1. Well, Chief, after you posted this earlier today, the Dow dove another thousand points. It’s now “officially” in correction territory. That was going to be my prediction. Correction for all domestic and international indices is overdue. Market has been superheated. Sideliners have been jumping in as if they were not already too late. Now they are jumping out in droves. If the correction reaches a certain predetermined downward point (not nearly yet), I have some cash reserves for tactical purchases. None of the pundit explanations account for a sustained recessionary drop, in my opinion. If near-term panic creates opportunity, the prepared may profit.

    Liked by 1 person

      • It the president takes credit for the previous upturn (which he does) called Trump Bump, will he take responsibility for this downturn (which I call Trump Dump)? No way. Politicians and egotists are so funny.

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      • He has a pretty big cushion to work with / if you include all of the gains since 11/8/2016.

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  2. I don’t think this is any where near panic. One gauge is by looking at PF blogs, which weren’t so widespread during the Great Recession. There’s been hardly any acknowledgment or concern, complacency is at max. Everyone is sitting on major gains, and this correction was long anticipated and barely registers.

    Maybe down 20% if it happens people will start to notice?

    Liked by 1 person

    • That’s a good signal to look at – PF blogs. A pretty sensible group of folks overall. Today was up, down, and back up (+300 DJIA).

      Like

  3. is down? Well, we are ready to buy 😀

    But I changed the long term perspective: I think for the retirement day I want to have extra in the bank the amount of expensive for 12 months to not touch the shares during a crisis (like now) and to have the freedom to sell when are up. What do you think, 12 months is enough or to put 24 x monthly expenses?

    Liked by 1 person

    • We actually keep about 30 months expenses in cash. I know that seems like a lot, but in FIRE, it’s more important to protect against the downside than grab the upside. I don’t think 12 months would be quite enough for me.

      Liked by 1 person

  4. Pingback: FIRE Second Anniversary – Life Wheel Update (2) | Mr.FireStation

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