Is This The Start Of A Bigger Correction?

Is This The Start Of A Bigger Correction?

After the first 1% drop in 109 trading days on Tuesday, many are wondering if this is finally the start to a market correction. Crude continues to weaken, small and midcaps are weak, and previous leaders like financials are pulling back as well. The S&P 500 Index might be less than 2% away from the recent peak, but many other sectors are showing weakness under the surface.

For starters, one of the main reasons the S&P 500 could be due for a 5% correction is it has simply been so long since we’ve seen one. In fact, the last 5% correction was right after Brexit—some nine months ago.

Looking at the data, the S&P 500 hasn’t been more than 5% away from its all-time high for 185 trading days, one of the longest streaks ever. Per Ryan Detrick, Senior Market Strategist, “The S&P 500 has gone a long time being within 5% of its all-time high, but here’s the catch—these streaks can continue for much longer than most expect.”

Some other things to remember:

  • Going back 20 years, March and April have been two of the strongest months (April ranks number one and March number three), decreasing the odds that a major correction could start now.
  • Over the past 11 years, the return during March and April has been positive 10 times, with the only loss being less than 1%, in 2015.
  • When the S&P 500 has made a new high at some point during the month of March (like it did this year), the entire month of March has closed lower only once going back 60 years (higher 15 out of 16 times with the only loss coming in 2015). March is down 0.6% currently this year, so this will be close with about a week to go.
  • Since 1928*, when new highs have been made in March, the month of April has been higher 75% of the time (15 out of 20), with the worst monthly return down only 3.1% in 2000.

Be sure to read Getting Technical With “Green-Tinted” Signals for more on why we think any pullback could be relatively modest and would be a buying opportunity.


*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of predecessor index, the S&P 90.

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Stock investing involves risk including loss of principal.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

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