Study: how long will it take for the stock market to make a new high
The S&P 500 has already made a 10%+ “small correction” (-11.8% to be precise). The Medium-Long Term Model does not think that this “small correction” will turn into a “significant correction”, so any further downside will be limited.
Here’s the study:
- After the S&P 500 made a 10%+ “small correction…
- And it has bottomed…
- How many trading days does it take for the S&P to make a new high?
Here are the historical cases. 10%+ “small corrections” starting on…
- April 12, 2012: 55 trading days
- July 16, 2007: 35 trading days
- January 3, 2000: 16 trading days
- July 19, 1999: 21 trading days
- October 7, 1997: 26 trading days
- February 19, 1997: 33 trading days
- May 23, 1996: 42 trading days
- January 3, 1990: 82 trading days
- August 27, 1986: 46 trading days
- October 10, 1983: 124 trading days
- September 25, 1967: 51 trading days
- May 13, 1965: 60 trading days
- August 3, 1959: 64 trading days
- September 23, 1955: 23 trading days
- January 5, 1953: 121 trading days
- June 12, 1950: 48 trading days
April 2, 2012
July 16, 2007
January 3, 2000
July 19, 1999
October 7, 1997
February 19, 1997
May 23, 1996
January 3, 1990
August 27, 1986
October 10, 1983
September 25, 1967
May 13, 1965
August 3, 1959
September 23, 1955
January 5, 1953
June 12, 1950
Conclusion
Here are all the “number of days it took for the S&P to make new highs”, arranged in order from least to greatest
16, 21, 23, 26, 33, 35, 42, 46, 48, 51, 55, 60, 64, 82, 121, 124
*These are trading days. There are approximately 21 trading days in a month.
As you can see, it takes an average of 1-3 months for the S&P to make a new high after it has bottomed from a 10%+ “small correction”.
But there’s one important thing to note here. Cycles are moving faster and faster. The current correction is the quickest 10%+ “small correction” in history. So why shouldn’t this also be a quick recovery?
Here’s my guesstimate: the S&P will take 1-2 months to make a new all-time high (as opposed to 1-3 months).
Troy: Do you think there is a link in recovery time for a correction within the business cycle ( early B.C or late B.C ) and in context of a secular bull or secular bear market. Seems to me that some tendency do exist, or is it just momentum and or stimulus.
love your work — Wade
Yes, there definitely is. Recovery times are faster during the first and last part of the economic expansion:
1. First part (e.g. 2009) because everyone is buying the dip. It’s the very start of the bull market and people don’t want to miss out
2. Last part because BTFD is ingrained in peoples’ mind.
Would it be safe to say, then, that we can extrapolate how late we are in the current boom/bust cycle right now depending on how fast this last correction recovers? Should we be worried, for example, if we see a miraculous recovery that makes a new high within 15 days from here?
The exact speed doesn’t matter. It’s a range.
If this market makes a new all-time high within 1 month, then we can say that this is late in the boom cycle.
The end of bull markets tend to see sharp rallies because the “buy the dip” mentality has been ingrained in investors’ psyche for many years.
Great article and good discussion points as well! Thanks!