Will the S&P 500 Drop Three Straight Months?

One sign of this recent bull market has been incredible resiliency. After going nearly four years without a 10% correction, the S&P 500 finally pulled back during the volatility of last fall. What is important to remember, however, is that 10% corrections are actually fairly common. Since 1950, the S&P 500 has pulled back at least 10% from its yearly high during 55% of all years. In other words, there is more than a coin flip chance of seeing a 10% correction from the highs sometime during your average year. After going such a long time without a big correction, most investors forget this fact. In addition, given we are later in the economic cycle, our call for more volatility is playing out so far in late 2015 and early 2016.

One of the more amazing bullish streaks from the past few years is in jeopardy of ending this month. The S&P 500 hasn’t dropped three consecutive months for an incredible 54 straight months. After the S&P 500 fell 1.8% and 5.1% in the past two months, this streak could end with a red February. The figure below shows just how rare streaks like this indeed are. The current streak of 54 straight months is the fourth-longest streak ever. The top two streaks were 108 months ending in January 2008 and 60 months ending in September 1999. Should the S&P 500 finish red this month, it could be subtle warning sign of bigger problems.

Current Streak of 54 Months Without a Consecutive 3-Month Drop for S&P 500 May End in February
020216_blog-figure_FIG 4

Source: LPL Research, FactSet 02/02/16


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