First, a little history to provide context. I presented this chart in January 2016, right around the lows that accompanied a correction of the magnitude we have experienced recently. The only difference then is that the correction and subsequent low of 2016 didn't cross the 20% barrier, which is a number that for some reason gets all sorts of hair raising chills and screams from stampeding investors.
The article was titled A Dow Chart Going Back 90 Years That Provides Bullish Calm.
That same chart I presented in the article then (chart from the article is below) can provide bullish calm now, only this time for different reasons.
When looking deeply into what has occurred recently compared to previous periods, it is worth noting the following: We have experienced a 20.21% correction in the S&P from its September top to its December low. This is the 5th time since 1954 we have experienced a 20% plus correction during a secular bull market. Let me explain.
In my work, there have been three secular bull markets post-Great Depression. They are labeled as "bull" in the chart above:
1. 1954 – 1968
2. 1982 - 2000
3. 2013 - ?
In the 1954 – 1968 secular bull market the following substantial (being defined as a correction of ~20% or greater) took place:
1957: -20.57% correction
1962: -26.40% correction
In the 1982 – 2000 secular bull market the following substantial (being defined as a correction of ~20% or greater) took place:
1987: -33.50% correction
1990: -20% correction
1998: -19% correction
During the secular bull market that started in 2013, this is the first 20%+ correction we have experienced.
What happened in the instances when a 20% or greater correction took place during a secular bull market?
1957 – After the correction, the market was positive 6 quarters in a row, gaining 64%
1962 – After the correction, the market was positive 9 quarters in a row, gaining 58%
1987 – After the correction, the market was positive 8 out of 10 quarters, gaining 60%
1990 - After the correction, the market was positive 11 out of 13 quarters, gaining 62%
1998 - After the correction, the market was positive 4 out of 5 quarters, gaining 55%
If this secular bull market was to terminate after only one 20% correction, it would be the first secular bull market over the past 100 years to do so. Additionally, 20% corrections, as demonstrated above, are traditionally buying opportunities, with an average gain of 60% taking place before real turbulence is witnessed again.
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