How does this decline compare to previous recessionary ones?

[Lsbcal]

I wanted to compare the decline from the November 2021 peak to previous recessionary market declines. It appears we are not currently in a recession but one could come about in future months. Unemployment is declining and should that reverse it would be very negative I think.

So I took daily data from several bad markets that included a recession and aligned the peaks. The Y-axis is days from the peak in calendar days (not trading days). The chart below shows where we are as of May 20, 2022 (red line). The SP500 is down -18.7% from the peak 97 days ago (not counting dividends). This is worse then all but the 1929 decline and the 2020 pandemic decline. The 1929 data is from the Dow Jones Industrial average and that period included deflation plus larger dividends then now.

Maybe we get a bounce up from here? Even in previous bad markets there were jagged rallies upwards. As usual, this is only historical and does not tell us what the future holds. Sorry about that .

If there is some interest, I will update this chart from time to time.

 

[NW-Bound]

.

Maybe we get a bounce up from here? Even in previous bad markets there were jagged rallies upwards. As usual, this is only historical and does not tell us what the future holds. Sorry about that .

If there is some interest, I will update this chart from time to time.

Of course, there have been and will be bear market rallies. Looking at your chart, I am just hoping we will have something like the green line or better, and not something worse.

And while we cannot predict the future, seeing historical data is good for me to put things in perspective.

And yes, I like to see the chart updated as things unfold.

 

[Lsbcal]

Of course, there have been and will be bear market rallies. Looking at your chart, I am just hoping we will have something like the green line or better, and not something worse.

And while we cannot predict the future, seeing historical data is good for me to put things in perspective.

And yes, I like to see the chart updated as things unfold.

I second the red. Seeing how markets evolve in bad times is sobering.

 

[COcheesehead]

Average bear markets decline 35% over 289 days.
Median bear markets decline 30% over 21 months.
Bears that do not result in a recession: down 22% over 4.5 months.

So pick which of the three we are in, LOL.

Data from Fidelity.

 

[donheff]

It will be interesting to watch the chart fill out. Here is to a "standard" recession with no black swans.

 

[target2019]

1929 is an outlier, data from a time when markets and gov't were very different.

2020 was an outlier too, but I prefer that over the other long, drawn-out affairs. But in time it may come to be considered as the start of one recession, from 2020 through 2025. Yes, I just 5 years of global and U.S. conflagration.

Sounds like my cup is 100% empty this morning!

 

[Markola]

I’m always impressed with your macro charts. I just don’t know how to place this swoon in the context of a very long bull market interrupted by a sudden global pandemic with record high unemployment, addressed by unprecedented money printing, QE and wage supports, much of which immediately inflated investable asset prices and resulted in record low unemployment, with high commodity prices in part due to a major recovery, a lingering trade war and a shooting war in commodity-rich parts of Europe, all touching off an inflation spike, heading us toward rapid Federal Reserve quantitative and rate tightening.

Got anything like that? [emoji43]*[emoji94]

 

[arcyallen]

It appears we are not currently in a recession but one could come about in future months.

I wouldn't worry about if we're technically in a recession or not. We could have unknowingly already been in one! There have been times that we didn't know we were even in a recession until after it was over. The final numbers keep getting revised over time.

 

[Midpack]

I do appreciate seeing your charts. We’ll see if this one mimics the past, 2020 was clearly something different. It does seem everything happens faster these days?

 

[CaptTom]

Thanks! Very thought-provoking.

My gut says today is most like either 1980, or 2008. Very different trajectories. 1980 had us recovered in around two years, while 2008 gave us a lost decade.

I guess we'll each see how good our own planning has been.

 

[Magus]

Thanks! Very thought-provoking.

My gut says today is most like either 1980, or 2008. Very different trajectories. 1980 had us recovered in around two years, while 2008 gave us a lost decade.

I guess we'll each see how good our own planning has been.

S&P got back to pre-2008 peak in 2012...longer than 2 years but no where close to a decade...in fact a decade later was up quite a bit from 2007 peaks. 2000 was a lost decade, though, with negative returns for equities.

If I had to guess, we're in a more like 1979-1980 scenario here than 2008 for a lot of reasons.

 

[daylatedollarshort]

As long as the inflation numbers are still high, the Fed has indicated it will continue to raise interest rates. When interest rates go up, bond yields go up, bond prices fall and stocks tend to decline because the higher interest rates cause a shift to fixed income. I don't see anything different for the next few months as the last few months, at least until the CPI numbers start going down. We're still at -7% real interest rates on the Federal fund rates right now. Usually to fight inflation that has to go to 0 to 2%.

 

[Rianne]

I learn more on this forum in an hour than I did in frick'n 4 years in college.

 

[copyright1997reloaded]

Thank you for the graphic, I appreciate the information.

I've been pretty pessimistic on this forum for a while now, especially in terms what was the inflation to come (that has now arrived). For those reasons I think the trend will continue down, especially after the March rally that failed miserably. (I do think we could see a ripping bear market rally along the way, i.e. "any day now" that lasts more than a couple sessions.)

However, I also like to keep my mind open to other scenarios. One of those that is intriguing is that due to information technology and now social media, market cycle times (in terms of calendar days) have become reduced. Perhaps we saw that in the 2020 Covid losses, and perhaps we are seeing that again? If true, one would need to somehow adjust the x axis based on information flow velocity (hey, I just made that term up so trademark pending! ). So perhaps we are farther along than we think.

Again, I am pretty negative so the above is mostly "the other me" talking to myself.

 

[Car-Guy]

Thanks! Very thought-provoking.

My gut says today is most like either 1980, or 2008. Very different trajectories. 1980 had us recovered in around two years, while 2008 gave us a lost decade.

I guess we'll each see how good our own planning has been.

I can deal with a year or two but I'm not sure I have another decade to wait (for anything). YMMV

 

[aja8888]

Real recessions have high unemployment and we haven't seen that yet. As a matter of fact, we have too many jobs and not enough applicants.

Possibly once the stock market declines further, and other asset prices decline (houses, new cars, etc) through demand destruction, we will slide into a recession.

 

[Lsbcal]

Thank you for the graphic, I appreciate the information.

I've been pretty pessimistic on this forum for a while now, especially in terms what was the inflation to come (that has now arrived). For those reasons I think the trend will continue down, especially after the March rally that failed miserably. (I do think we could see a ripping bear market rally along the way, i.e. "any day now" that lasts more than a couple sessions.)

However, I also like to keep my mind open to other scenarios. One of those that is intriguing is that due to information technology and now social media, market cycle times (in terms of calendar days) have become reduced. Perhaps we saw that in the 2020 Covid losses, and perhaps we are seeing that again? If true, one would need to somehow adjust the x axis based on information flow velocity (hey, I just made that term up so trademark pending! ). So perhaps we are farther along than we think.

Again, I am pretty negative so the above is mostly "the other me" talking to myself.

The chart shows that some rallies in what are eventually deemed bear markets can last a few months, not just days. If one wanted to lighten up the equities now, then I think waiting for one of those kinds of rallies might be wise. We are down -18.7% from the peak and a rally up to being down "only" -10% seems possible to me.

I sure wish I had lightened up last November when our accounts were the best ever but nobody told me about Putin's intentions, the inflation wave, etc. Well inflation had been going up in October so that was indeed a clue but it was supposed to be transitory .

 

[copyright1997reloaded]

Real recessions have high unemployment and we haven't seen that yet. As a matter of fact, we have too many jobs and not enough applicants.

Possibly once the stock market declines further, and other asset prices decline (houses, new cars, etc) through demand destruction, we will slide into a recession.

It is coming. Unemployment is a lagging indicator.

Here's yet another crack appearing:

Consumers with low credit scores are falling behind on payments for car loans, personal loans and credit cards, a sign that the healthiest consumer lending environment on record in the U.S. is coming to an end.

Sorry, it is behind a paywall: https://www.wsj.com/articles/more-subprime-borrowers-are-missing-loan-payments-11652952602?mod=hp_lead_pos2

 

[friar1610]

I learn more on this forum in an hour than I did in frick'n 4 years in college.

But better parties in college!

 

[NW-Bound]

The chart shows that some rallies in what are eventually deemed bear markets can last a few months, not just days. If one wanted to lighten up the equities now, then I think waiting for one of those kinds of rallies might be wise. We are down -18.7% from the peak and a rally up to being down "only" -10% seems possible to me.

I sure wish I had lightened up last November when our accounts were the best ever but nobody told me about Putin's intentions, the inflation wave, etc. Well inflation had been going up in October so that was indeed a clue but it was supposed to be transitory .

Market timing ain't easy. Lemme tell you about my personal experience.


In 2000, I knew something was not right, but did not think my non-dotcom tech stocks would crash that hard. So, I did not sell when the new-economy companies started to blow up. From 3/24/2000 to 5/26/20003 or in just 2 months, the S&P lost 10%, the Nasdaq lost 35%, and I lost 16%.

But the market recovered. By 9/1/2000, the S&P recovered to break even, the Nasdaq was down only -16%, and I was down a mere -2% relative to the peak. Happy Days are here again! I was back to looking to set new personal highs.

You know what the market did after that. It turned negative again, and on 9/10/2001, the day before the 9/11 terrorist attack, the S&P was down 30% and the Nasdaq 71% from their March 2000 high. I was down -26%.

Of course the 9/11 event made everything worse, and at the bottom on Oct 9, 2002, relative to the highs, the Dow was down to 66c on the dollar, the S&P down to 51c, the Nasdaq down to 22c, and I myself down to 56c.

All the above numbers came from my diary, which I maintained from prior to 2000.

Note how the Nasdaq went from -71% to -78% after 9/11, while the S&P went from -30% to -49%. The 9/11 event caused a change of -7% for the Nasdaq, and a larger change of -19% for the S&P. How could that be?

Ah, but that's because the numbers are all relative to the peak on March 2000.

If you had $1 in the S&P or in the Nasdaq, on the day before 9/11, you were reduced to 70c and 29c respectively. Then, 9/11 drove the numbers further down to 51c and 22c. Relative to 9/10/2001, the S&P was driven down to 51/70 = 73%, and the Nasdaq 22/29 = 76%.

In the above light, the 9/11 event drove down every sector equally. It's just that the dot-com burst already hit the Nasdaq a lot more than the S&P, and the Dow the least. What had gone up the most went down the most. When the terrorist attack occurred, the froth in the Nasdaq was already taken out, and from that point on it did not get hammered any worse than non-tech stocks.

But I digress. Back to market timing, from my observation of the bubble burst, when the subprime market burst in 2007-2008, I tried to be more proactive.

More on this later.

 

[target2019]

I learn more on this forum in an hour than I did in frick'n 4 years in college.

But better parties in college!

Real learning took place outside of class.

 

[Lsbcal]

Looking at that year 2000 decline, unemployment took a turn for the worse in Jan 2001. If you had reduced equities by Feb 2001 the SP500 was down only about -11% on Feb 2 2001 (day 104 on the gold line in the chart). Granted it is hard to accept losses from the peak but -10% losses are relatively easy to recover from whereas a -50% loss as was seen in the SP500 in that year 2000 decline, those are a lot harder to recover from.

So yes, market timing is difficult and I think there are only a few good quality signals to go by. My favorites are the amount of SP500 decline off the moving average coupled with a turn up in the unemployment moving average. That is what I'm looking for to significantly reduce equities.

 

[cyber888]

Good Chart ... maybe few more months till we hit bottom ??

Well, we have 7 - 8 more interest rate hikes, and no Fed Put until 2023. And starting next month, the Fed will start tightening QE and will suck liquidity out of the market.

I wanted to compare the decline from the November 2021 peak to previous recessionary market declines. It appears we are not currently in a recession but one could come about in future months. Unemployment is declining and should that reverse it would be very negative I think.

So I took daily data from several bad markets that included a recession and aligned the peaks. The Y-axis is days from the peak in calendar days (not trading days). The chart below shows where we are as of May 20, 2022 (red line). The SP500 is down -18.7% from the peak 97 days ago (not counting dividends). This is worse then all but the 1929 decline and the 2020 pandemic decline. The 1929 data is from the Dow Jones Industrial average and that period included deflation plus larger dividends then now.

Maybe we get a bounce up from here? Even in previous bad markets there were jagged rallies upwards. As usual, this is only historical and does not tell us what the future holds. Sorry about that .

If there is some interest, I will update this chart from time to time.

 

[Koolau]

Good chart for perspective. By all means, please keep updating as appropriate, and thanks!

 

[Lsbcal]

CORRECTION: I found an error in my charting of the current (red line) data. This chart below is corrected and you might notice the red line is stretched out more to 138 days (to May 20) since the SP500 peaked on Jan 3 2022.

This chart takes account of the weekends and holidays. The idea is to show how drawn out some of these market declines can be. In really bad bear markets, its like a slow drip torture.