The S&P 500 sees its third leg down more than 10%. According to Bespoke, history here suggests new lows from past bear markets.

The stock fell sharply after the Federal Reserve announced on Wednesday that it was raising its benchmark rate by three-quarters of a percent as it battles inflation, with the S&P 500 being the bespoke investment group described below in its third leg. The slide continues.

“Where this bear market ultimately bottoms out is anyone’s guess, and events outside the Fed’s control will likely play a role in where the market ends up,” Bespoke said in a note emailed Wednesday. “In times like these, however, it’s always good to see how the current period compares to other periods, if for no other reason than to see how bad we have or how bad it could be.”

According to data from FactSet, the S&P 500, which hit a record high on January 3, has sank 20.5% so far this year. The index fell 1.7% on Wednesday, the biggest fall since September 13, the day the inflation data for August was released. hotter than expected,

According to Bespoke, the S&P 500 is down more than 10% from its August highs, its third leg down in the current bear market, although it is still well above its June lows.

The firm studied past bear markets during the post-World War II period, which began at all-time highs and saw at least three legs down 10% or more before the S&P 500 finally bottomed out. Went. They began in January 1973, November 1980, August 1987, March 2000 and October 2007, according to Bespoke.

“If there was a similar pattern in all five of the earlier periods, it is that in each one, the S&P 500 made the low of its third leg,” Bespoke said. The S&P 500 isn’t far above its June lows, “so either the market has declined further,” or if the index can return to 4,250, “it would provide bulls some hazy hope that the worst of the fall would be behind.” We.”

Bespoke Investment Group

The bespoke note shows the S&P 500 closed down 10.4% on Tuesday from its recent high on August 16, confirming that “the index is in a third leg of at least 10% during the current bear market.”

“After some highly oversold readings in mid-June, the S&P 500 rose 17.5% by mid-August, but the rally failed just shy of its 200-day moving average”, the firm said. That same month, Fed Chairman Jerome Powell gave a clear message in his 26 august speech in Jackson Hole. Wyo., economic symposium that he will continue to fight inflation through tighter monetary policy while still causing pain in businesses and households, spark sell-off in shares,

recession deep After a stronger-than-expected reading on August inflation based on the consumer-price index, investors questioned whether the S&P 500 would regain its June lows.

last bear market

“The bear market that began in January 1973 and stretched until October 1974 was quite relentless,” Bespoke said. The bottom of the third leg was particularly painful, as the S&P 500 plunged more than 37% in a sell-off that only intensified after the resignation of “President Richard Nixon” in August of that year.

The note shows that the bear market of 1980-’82 was “notable for the fact that it rallied in the year after all previous declines were erased”.

Bespoke Investment Group

Bespoke said the 1987 bear market was just as deep, but sharp, spanning less than five months. “This bear market was also unique in that it is the only market with at least three legs where each 10%+ drop resulted in no less.”

Bespoke Investment Group

According to the note, “outside the COVID crash, the bear markets of the 21st century have been further dragged on.”

From the peak in March 2000 to the low of October 2002, the bespoke lengthened five different legs, which were at least 10% lower than the S&P 500’s ending. “Most of them were serious,” according to the firm’s research.

Bespoke Investment Group

Most recently, “the bear market that began in 2007 involved five separate falls of at least 15%, including three that exceeded 25%,” Bespoke said. The rally was the only jump of more than 10% during the period when the S&P 500 made higher levels.

“Unfortunately for any bulls that relied on that positive technological development at the time, this was a major fake-out,” Bespoke said.

All three major US stock benchmarks fell sharply lower on Wednesday, as investors digested the latest major rate hike from the Fed as it aims to moderate inflation through tighter monetary policy. Blue-chip Dow Jones Industrial Average DJIA,
dropped 1.7%, while the technology-heavy Nasdaq Composite comp,
1.8% sank.

Meanwhile, the S&P 500 SPX,
Approaching the trough of 2022. According to Dow Jones market data, the index ended up 3.4% on Wednesday from its closing low of 3,666.77 this year on June 16.

Reading: The Fed predicts a major slowdown in the economy and rising unemployment as it battles inflation

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