Wednesday, July 10, 2013

A History of Corrections (excerpt)

Corrections are typically defined as declines of 10% or more. Bear markets are defined as declines of 20% or more. There have been three corrections in the S&P 500 so far during the current bull market, in 2010 (-16.0% lasting 69 days), in 2011 (-19.4% lasting 154 days), and in 2012 (-9.9% lasting 59 days). That means that since the start of the bull market, there have been four relief rallies that more than offset the corrections along the way, with the S&P 500 still up a whopping 144%. Last year’s correction troughed on June 1. There have been a few downdrafts since then, but no corrections.

During bull markets, corrections aren't necessarily frequent occurrences. Indeed, there was only one correction during the previous bull market, but only if the start date is pegged at October 9, 2002 rather than March 11, 2003. Between the bear market of 1987 and 2000-2003, there were just two corrections. Between the bear markets of 1980-1982 and 1987, there was only one. (See our Bear Markets & Corrections Since 1929 and the companion table.)

Today's Morning Briefing: The Latest Relief Rally. (1) Despite three corrections totaling 45%, bull is up 144%. (2) No correction since June 1, 2012. (3) The latest mini-correction was a drop of 5.8%, followed by a gain of 5.0%. (4) If phasing out QE is our only problem, then life is good. (5) Backup in bond yields almost over thanks to NZIRP. (6) Obamacare may be in intensive care. (7) Insurance exchanges not ready for show time? (8) Fears allayed again. (More for subscribers.)

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