Markets Get Crash(ier)
Over the last three weeks, as interest rates surged above 3%, we explored the question of whether something had “just broken” in the market.
- Did Something Just Break? 10-05-18
- Yes, Something Just Broke 10-12-18
- Market Clings To Support – 10-19-18
As I stated last week:
“This past week has been a decidedly tough struggle for stocks to pick themselves up after last week’s drubbing. While we saw a sharp reflexive bounce earlier this week, that bounce quickly faded as stocks returned to retest support at critically important levels.”
While the market was oversold last week, there was no follow through on bounces which ultimately led to “crash”open on Friday morning.
Now, all this SOUNDS terrible. And, after having THE single longest uninterrupted bull run in the history of the market with record low volatility it FEELS even worse.
So, before we get into the not so good news, let’s keep this all in perspective for a minute.
For the year:
- The S&P 500 index, not including dividends, is down 0.56%.
- The S&P 500 Total Return index is still positive by 0.98%
- A 60/40 model (60% Vanguard S&P 500 and 40% Vanguard Bond Fund) is down 1.72%
What has been different this year so far, is that bonds, while they have reduced the volatility of the recent decline in the S&P 500 index, have not contributed to portfolio returns this year so far. So, the only place to hide has been cash.
However, if we take a look at the market from 2009 to present, we can gain some better context.
The recent decline is very much like the previous corrections in the market. The red circles denote when both “sell signals” align (a correction of overbought conditions and a triggered sell signal). These corrections have specifically coincided with periods where the market was extremely deviated above the running bullish trend line (gold boxes.)
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