S&P 500 pokes the bear
- Stock sell-off extended early Monday
- S&P 500 volatility reached new level
- Index briefly entered, then exited, bear territory
The US stock market kicked off this week where it left off the last one—with multi-year volatility milestones.
After posting its biggest weekly decline since March 2020 last week—and ending it with a two-day, 10.5% sell-off—on Monday the S&P 500 (SPX) swung from being down as much as 4.7% intraday to being up as much as 3.4%. That’s a move the index has matched or exceeded only three other times over the past 68 years:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
In fact, the SPX has swung between being down at least 3% and up at least 3% in a day only six other times, and it’s telling that four of them occurred in October-December 2008 during the depths of that year’s financial crisis. The other two occurred on October 20, 1987 (the day after the Black Monday stock-market crash) and May 29, 1962 (the day after what was then the second-largest one-day decline for US stocks).
In the process, the SPX also crossed the bear-market threshold on an intraday basis, falling as much as 21.3% below its February 19 close of 6,144.15, although it rebounded to close above the bear dividing line. While it may seem like an academic distinction, bear markets are traditionally measured on closing-price basis, so unless the SPX closes at 4,915.32 or lower, it won’t “officially” be in a bear market.
Nonetheless, it’s worth looking into what the SPX has done after the other times it initially closed in bear territory. If the following table suggests anything, it’s that the SPX’s performance after these events may be potentially predictable in some ways, but very unpredictable in others:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
First, in every case the index fell more after first entering a bear market. But the size of that additional decline ranged from less than -1% to -46%, and it took the index anywhere from seven to 388 (trading) days to reach its eventual bear-market low. In six of 10 cases the additional decline was 10% or less, but it also took the SPX at least a month (more than 20 trading days) to reach its eventual low in eight of 10 cases.
For investors and traders with a longer time horizon, the final column may provide some welcome perspective for turbulent times. A year after first entering a bear market, the SPX was higher seven out of 10 times, and gained at least 12% in each of these cases.
Today’s earnings include: RPM (RPM), WD-40 (WDFC), Cal-Maine Foods (CALM).
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