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In the discussion thread: When will we get back to Dow 36000? [View all]

Response to Shermann (Reply #7)

Mon Sep 26, 2022, 07:50 PM

8. That's not an accurate description of the bigger picture

https://www.guggenheiminvestments.com/mutual-funds/resources/crucial-conversations/putting-pullbacks-in-perspective

We can gain important perspective on market pullbacks by considering post-World War II declines in the S&P 500® Index. The majority of declines fall within the 5-10 percent range with an average recovery time of approximately one month, while declines between 10-20 percent have an average recovery period of approximately four months. Pullbacks within these ranges are not uncommon, occurring frequently during the normal market cycle. While they can be emotionally unnerving, they will not generally undermine a well-diversified portfolio and are not necessarily signals for panic. Even more severe pullbacks of 20-40 percent have registered an average recovery period of only 13.8 months.

In contrast, pullbacks of 40 percent or more, while occurring much less frequently, post an average recovery time of 58 months and can potentially compromise an investor’s financial plan. Pullbacks above 20 percent (including all pullbacks above 40 percent), which have registered the longest recovery periods, have been associated with economic recessions. When evaluating a market pullback, the probability of a recession is a key insight to consider when determining whether or not to reduce equity exposure.

While recessions are readily identifiable in hindsight, prospectively they can be difficult to spot. This makes access to reliable market analysis all the more important when determining the probability of a recession.


So far this year, the Dow has shed 23%, the S&P -21%

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