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Milan Cacic

March 18, 2022

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WHAT HAPPENS AFTER THE S&P 500 DROPS 10%?

There is a lot going on right now. Headlines of war, COVID-19, inflation, supply shortages, interest rates, soaring fuel prices, and the markets dropping can cause confusion and drive us to throw the towel in and put our savings in cash. During times like this, it’s a good idea to see what history tells us.

 

On March 14th, the S&P 500 was down approximately 13% year-to-date which is “technically” considered a correction.  It’s advisable to l review what has happened after previous corrections of similar magnitudes.

 

 

As you can see from the chart below, after the S&P 500 has corrected at least 10%, the market is up on average 17.2% one year out. This data is based on the last twelve corrections where a 10% drop or more was realized in the index between 1988 and 2021. In 3 cases, the index was down 1 year out and in 9 cases, it was up 1 year out. The best performance 1 year out was +30.2% in 2020 and the largest decline was −33.2% in 2008. The median has been +17.2%. The gray lines show the performance of each of the last 12 outcomes following a 10% correction.

 

The bottom line is that market corrections are generally a buying opportunity (at least that’s what history tells us).

 

Source: Charts of interest, RBC Global Asset Management, 2022

 

I have also included a piece from our CIBC Economics Team entitled “The US yield curve and the R word.”.

 

As always if you have any questions please give us a call.

 

Have a great weekend.

 

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