The DJIA plunged 10% in June as continuing credit turmoil and crippling fuel costs sent investors scurrying for cover. But fear not. Barry Ritholz has a comforting graph for you. In 13 of the biggest 15 1-month declines in DJIA history, stocks bounced back in the next year.
As the chart…shows, we often see a healthy snap-back after significant one month sell offs 6 and 12 months later. Except when we don’t, such as 1973 and 2001, where we see even larger losses one year later.
…Is the current environment — high inflation and oil prices, modest growth, large write-downs and profits declining from a peak measure, and relatively low fear levels — more similar to 1973 and/or 2000, or is it closer to the other 13 periods?
Answer that question and you have your trade.