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Thursday
Jan302014

835 Days and Counting...

Recent stock market weakness has stoked fears that we've hit a top in the S&P 500 and a "correction" is right around the corner.  A "correction" is usually defined as a decline of at least 10% that was preceded by a rally of at least 10%.  Since October 3rd, 2011 the S&P 500 has rallied 68.15% over 835 calendar days without a correction of at least 10%. The run up can be seen in the chart below.

A correction of some kind is eventually inevitable, but timing when that 10% drop comes is very difficult.  There have been 4 rallies in the history of the S&P 500 that have had a longer streak than the current one, so this correction-free stretch is definitely not unprecedented.  There have been two periods in the last quarter century that had a longer streak, including the period between October of 1990 and October of 1997.  During that 7 year period, the streak without a correction got all the way to 2,553 days before finally losing steam.  More recently we saw a streak of 1,673 days (twice as long as our current distance from a 10% drop) between March 2003 and October 2007.  Over those periods, returns were 232% and 95% respectively; taking money off the table in mid-1993 or early-2005 would have been a serious drag on returns versus the market.  It's worth pointing out that the only other 21st Century run as long as the current one without a streak was also an entire bull market cycle.  If we were to see a streak as long as the early 2000s bull market, we would be 5 months into the first term of President Obama's successor. A run as long as the mid-90s bull streak would put us at October 14th, 2018...more than a decade removed from Lehman Brothers' bankruptcy.  If returns were to hold out in the same pattern as the 90s streak, the S&P will be at an impressive 2,558.  Of course, that outcome is not particularly likely.  In order to put the current streak in context, the below chart shows the length of streaks without a 10% correction dating back to 1928.

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