Last Wednesday (May 17), the S&P 500 Index fell 1.8%, for the largest one-day drop since September (-2.5%). The loss also ended a streak of 15 consecutive days without the S&P 500 closing up or down 0.5% or more, the longest since 1969. On Thursday and Friday (May 18-19) equities bounced back, but the big question remains: Is a big drop near all-time highs a warning sign?
Per Ryan Detrick, Senior Market Strategist, “The big drop on Wednesday was a harsh reminder that markets can indeed be volatile, as the recent historic lack of action has lulled many into forgetting how volatile markets can be. Here’s the good news: historically, large drops that take place near all-time highs have done little to slow bull markets.”
Since 1950*, there have been 13 other times when the S&P 500 was within 0.5% of an all-time high and it dropped at least 1.8% (like Wednesday). As the chart below shows, the returns one, three, and six months later have been stronger than the at-any-time returns. Additionally, six months later the index has been higher all five times going back 20 years. In other words, Wednesday’s was a big move that woke up many investors, but longer-term it likely doesn’t mean much, and the bull market is still alive and well.
*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
The economic forecasts set forth in the presentation may not develop as predicted.
The Standard & Poor’s 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.
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