How much more can stocks fall?

*Written as of Wednesday, October 10’s close.
As I wrote in today’s market outlook, the U.S. stock market tends to experience some more short term pain after crashing.
That’s because these sort of 1 day crashes usually aren’t the bottom for stocks. So how much more can the U.S. stock market fall?
Here are the historical cases in which the S&P fell more than 3% in 1 day (first case in 3 months), and the S&P’s maximum decline over the next 1-2 months.

Here’s the exact same study, filtered with the cases in which the S&P was above its 1 year moving average (252 trading days).

As you can see, the median decline over the next month is 1 month is 2-3%.

  1. Another 2% decline brings the S&P 500 to 2729
  2. Another 3% decline brings the S&P 500 to 2700.

In other words, a clean break below the 200 day moving average.

Does this mean that the S&P will definitely fall to this level? Of course not. This is the median case. Sometimes the stock market falls more. Sometimes the stock market falls less.
And once again, these kind of crashes aren’t a long term bearish sign. Look at the stock market’s 6-9 month forward returns. Only 1 bearish case.

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