≈ Mind the History. ≈
The recent market swoon has sent the media machine into overdrive. Headline writers are having a heyday spinning scary-sounding tales. Beware the taper! Buckle down for the bearish winds of seasonality! Supply chain kinks are going to kill Q3 earnings! Vaunted valuations give a grim outlook! I could go on.
It’s hard to take such hyperbole seriously when the S&P 500 is ripping higher, but combine these nasty narratives with a sinking stock market, and even it’s easy to find yourself giving in to the pessimism.
Until you put things in historical context, that is.
Did you know that the average intra-year pullback is -14%? In other words, every single year (on average), stocks plummet 14% for one reason or another. You’ll find the financial media whipping up all sorts of fearmongering to accompany each decline. And yet, despite these seemingly world-ending episodes, the stock market has gone on to continue churning out average annual returns of 10%.
Corrections like this are a feature, not a bug. If you find the current theater surprising, it’s likely because the abnormally low volatility we’ve witnessed in 2021 has lulled you into a false sense of security. Recency bias has you thinking downturns worse than a few percentage points means something is wrong.
Let me be clear. Drops like what we’ve witnessed over the past month are as common as dirt. In fact, if this is as low as we go (call it -5% from the peak), this will actually be one of the more benign intra-year downturns in history.
So says the chart of the day.
Chart of the Day
The Normality of Pullbacks
Nothing like a clean 41-year history of market performance to set your expectations straight. The yellow line reveals the average annual pullback is -14.2%. So we could drop another 10% from here, and it wouldn’t signal anything abnormal.
Video of the day
Coach Frank’s Charts
Watch this clip from Friday’s Halftime Report where the coaches analyze Frank’s charts and discuss their potential trading setups on stocks like Horizon Therapeutics, Applied Materials, Intercontinental Exchange, Anaplan, TreeHouse Foods, Walgreens, and Corteva.
Today’s line up
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