Weekly Market Update August 19, 2023
Dow Jones Industrial 34,501 -2.2%, S&P 500 4,370 -2.1%,
Nasdaq Composite 13,219 -2.6%, US Ten Year 4.25%, Crude Oil $80.63
Stocks finished the week lower for the 3rd week in a row. So far the S&P 500 Index has retreated ~5% from August highs. Can this weakness in stocks continue? Absolutely – keep in mind that earlier this year, the S&P was down nearly 8% from the beginning of February to mid-way through March. And historically, we have seen markets correct (much more than what we’ve seen so far this month) quite a few times. Since 2002, the S&P 500 Index has seen intra-year pullbacks of 10% or more 10 out of 20 years. The chart below shows the last 20 years of market returns (blue bar) set against intra-year corrections (red square). As you can see, the S&P finished higher (in the years where there was ANY correction) 17 out of 20 times. And of THOSE years, the market finished up 10% or more 13 out of 17 times.
Viewed another way, in years where there was a very high return on the S&P 500 Index, we often times saw a correction of 10% or more during those same years. In fact, since 1928, the S&P gained 10% or more 55 times, and of those times there was a correction of 10% or more 23 times. During the same time, stocks finished up 20% or more 34 times, and saw a correction in those years 16 times. So roughly ½ the time we have seen substantial gains in the market, we’ve also seen substantial declines.
The point is that it can be very easy to get caught up in the negative momentum of market corrections. These periods may even cause investors to call into question their original narratives for investing in the companies they own. But history has shown us over and over that market corrections, like the one we are seeing now, are not out of the ordinary. Markets go up, and markets go down, but they do neither in a straight line. If you find yourself getting emotionally caught up in the momentum of a correction, then always remind yourself to “PAN-OUT” and remember the history of the market over the long term (see chart below).
Have a Great Weekend,
Marshall
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