Investors conditioned to expect quick recoveries from equity stumbles may need patience after US stocks fell into the first correction in four years.
Judging by prior 10 per cent drops in this bull market, it could take until the end of 2015 as investors await a return to levels last seen in May. The gauge has fallen as much as 12 per cent since reaching a high that month.
The S&P 500's rally that began in March 2009 has been marked by two previous corrections: a 16 per cent selloff from April to July in 2010, and a 19 per cent slump over seven months a year later. The benchmark group recovered within about four months of each, so if history is any guide, the market may not be back at its May peak until late December.
Looking back at the 25 bull-market corrections since 1950, the one happening now "looks pretty run-of-the-mill," said Brian Jacobsen, who helps oversee $US250 billion ($355 billion) as chief portfolio strategist at Wells Fargo Advantage Funds in Wisconsin. The median recovery time in those cases has been about 90 days from the trough.
If the current rout's low of 1867.61 on August 25 holds, Jacobsen's data suggest the market could be back to its May record "around the time we're all gathered around tables for Thanksgiving and Christmas," he said.
Strong stomach needed
Living through the rebound will require a strong stomach as swings in stocks double from earlier in the year, according to Jacobsen's analysis.
"The uniform message is the recovery can be very bumpy," he said in a phone interview. "It moves in fits and starts. We could be looking at heightened volatility in the markets until about Christmas."
Others are even more optimistic. The S&P 500 will end the year at 2200, according to the median estimate of 21 strategists at brokerages tracked by Bloomberg. That's 3.2 per cent above the May peak of 2130.82, and 15 per cent from Wednesday's close.
"The historical trading pattern shows that the S&P 500 typically recovers fully within three to four months following the end of a correction," David Kostin of Goldman Sachs wrote in an August 28 report to clients. "Based on this template, S&P 500 would approach its all-time high in December 2015," he said, while reiterating his year-end target of 2100.
Three of the strategists say the benchmark index won't make it back to the record this year, while Jefferies Group's Sean Darby sees the market declining from its current level. Other skeptics question whether the S&P 500 has found its bottom yet, making it premature to start counting the days to a recovery.
"My gut instinct is that we may not have seen the end of this," said David Joy, the Boston-based chief market strategist at Ameriprise Financial. His firm oversees about $US811 billion. "I'm not convinced the downside volatility is over."
Among the most optimistic strategists is Jonathan Golub of RBC Capital Markets. "When the market turns, it's going to happen much more aggressively than people think," he said in an August 26 interview.
Within the next three months, "we should've made up all of the loss that we've had."
Bloomberg
