After a nice up day last Monday, the S&P 500 fell sharply over the final four days of the trading week. For the full week, the index was down 5.69% — it’s first 5%+ decline since September 2011. Since 1980, the S&P has only had 28 other 5%+ down weeks. Below is a table of them that shows the index’s performance over the following week, four weeks and twelve weeks.
As shown, the index bounces back nicely in the near term most of the time. The average and median returns over the next week, four weeks and twelve weeks are very positive following 5%+ down weeks, and they’re much better than the market’s typical performance over all one, four and twelve weeks periods. There have been four other 5%+ down weeks since the bull market began in 2009, and obviously we recovered nicely following all of those.
While the average returns after big down weeks are very positive, it doesn’t mean we’re out of the woods by any means. As you’ll notice in the table, the crash in October 1987 was preceded by a 9.12% down week, and down weeks in 2002 and 2008 were all followed up by significant declines over the next twelve weeks.
For a complete run-down of this week’s sell-off and what it means for the market going forward, sign up for a Bespoke Premium membership and check out Friday’s Bespoke Report newsletter. It’s probably the most important one we’ve written in a couple of years. Sign up is quick and easy at our Subscribe page, where you can use the coupon code “markets” to get a 10% membership discount.