U.S. stock investors waiting for the all-clear sign may need to brace themselves for another month of drama, if history is any guide.
Strategas Research Partners LLC points out that the S&P 500 has a messy history of bounce attempts before settling on an October bottom, with jerky markets lingering after steep August declines in 2011, 1998 and 1990. In each case, a recovery only emerged after the initial low was undercut by as much as 3.8 percent a month or so later.
“We’re not done with the correction quite yet,” Chris Verrone, partner and head of technical analysis at Strategas Research Partners, said by phone. “We tend to get bottoms when you get fear. We need to see fear from investors before we get the good and final low.”
While nothing says the pattern must be replicated, it may give a clue to those seeking solace after the S&P 500 dropped 10 percent in four days last month -- the first correction since 2011. That selloff has since been met with daily rallies of as much as 4 percent and subsequent declines surrounding uncertainty in Federal Reserve policy and global economic conditions.
In a similar climate, Europe’s sovereign debt crisis in 2011 overshadowed strength in the U.S. Overseas worries dragged the S&P 500 down 7.2 percent in the first week of August. By mid-October, the gauge saw six rallies and five pullbacks, slumping as much as 6.7 percent in one day.
The initial August 2011 intraday low of 1,101.54 didn’t hold. It was undercut two months later by 26.77 points before the recovery stuck.
In the rout that began August 1998, U.S. markets were coping with the collapse of Long-Term Capital Management as economies in Asia, Russia and parts of Latin America slumped. That sent stocks stumbling 12 percent in the last four days of the month. Much like 2011, the repair process took four rallies of as much as 6.7 percent and four declines of as much as 6 percent.
That year, the S&P 500 fell 1.8 percent from the September intraday low to the October one.
While 1990’s autumn decline wasn’t as volatile, living through the rebound still required patience. After tumbling 17 percent in August 1990 from a July high, the benchmark recovered only after going past the initial low by 3.8 percent, with numerous bounces in between.
This time around, strategists are optimistic that U.S. stocks will recover by the end of 2015. Although nine surveyed by Bloomberg have sliced their year-end forecasts since the August selloff, they predict the S&P 500 will end the year at 2,171. That’s 1.9 percent above the May peak of 2,130.82, and 15 percent from yesterday’s close.