Last Thursday’s 4.78% dive in the S&P 500 followed by yesterday’s 6.66% freefall two business days later have served as a hint and confirmation that sharp daily declines do happen. Are these signs of capitulation selling near a market bottom or the beginning of a new wave of high volatility with more downside to come?
Unfortunately, there’s no crystal ball function in Excel, so let’s take a more pedestrian approach to investigating the question. Here is a companion chart to my frequently updated S&P 500 snapshot of performance since the 2007 high. In this version I’ve highlighted all the days with a 4% or greater decline.
As we readily see, these sharp daily tumbles happened almost exclusively in the bear market decline. A total of 20 such days occurred between the October 2007 peak and the March 2009 low. Prior to last Thursday’s 4.78% tumble, only one had occurred following the 2009 low. Now, a mere two market days later, we have experienced an even greater selloff of 6.66%
Let’s take a longer look back. Many of my readers were active in the market during the Tech Bubble and subsequent bust. But during the queasy months of the Tech Crash, there were only four 4% plus declines — and none in the rally from the 2002 low to the 2007 all-time nominal high.
At least since the onset of the 21st Century, daily losses in excess of 4% happen in cyclical bear market declines. The one outlier during this time frame was the 4.28% decline on April 20 2009, about six weeks after the 2009 low. Of course, Monday’s 6.66% selloff gets us closer to a bottom than last weeks 4.78% decline. But the specter of the 2008 Financial Crisis, with it’s 20 4% plus declines, took the index from 1251.70 to 816.21 in 56 business days — about 11.5 weeks. A 20011 meltdown of comparable magnitude would take us to mid-October, the month that has most often hosted market bottoms.