These last few weeks have been brutal for the world of stocks. During October alone, the S&P 500 stock index dropped by nearly 7%, wiping out all YTD gains. A typical diversified portfolio, holding 60% stocks and 40% bonds fell by roughly 4.75%. No matter how you look at it, ouch.
Is that really a big deal, or unusual? Well, it depends.
Quick, without looking,
Answer: 23 times.
Answer: -5% exactly, realized from August 15th to November 4th, 2016.
Answer: -21.6%, realized from May 2nd through October 4th, 2011.
Answer: 42 days.
Now here’s the kicker –
Answer: None of them led to a longer-term, deeper and protracted bear market. They all were temporary pauses within an ongoing bull market.
Answer: Because the economy has been steadily growing and expanding since March 2009. In other words, no recession.
Answer: A resounding probably not, as there is no evidence that a near-term recession is in on the horizon.
Well, given that we see no near-term recession, our best opinion is that October’s correction, as unpleasant as it was, was another short-term pause within a larger – as of now – still ongoing (admittedly, aging) bull market.
Final bonus question –
I’ll let you answer that for yourself.
The time will come to make portfolio adjustments in anticipation of a larger and meaningful price adjustment, but that time is not yet here for us. Be confident that we are on full alert.