Where Do 3% Declines Occur?

While Tuesday's declines were pretty gruesome, it ranks as only the 25th worst one-day decline for the S&P 500 going back to 1962.  If we haven't topped out and the bull market continues (meaning the index takes out the 2/22 highs without going down 20%), the 3.47% decline will have come 1,602 days into the current bull market.  If we have topped out and a bear market has begun, the decline will have come just 5 days into a new bear market.

So where do 3%+ declines usually occur during bull and bear markets?  We looked at all bull and bear markets going back to 1962 to find out.  If a bear market has indeed started, the 3%+ decline just 5 days in, will be the earliest yet.  As shown in the first table below, most come well into bear markets.  If the bull market continues, past data shows that there are plenty more days to come before the end of the cycle.

In all instances of 3%+ declines, the averages show that the S&P 500 rises in the month and three months following.  When the 3%+ declines come during bear markets, the average gain over the next month is 3.40% and 4.35% over the next three months.  When the 3%+ declines come during bull markets, the average gain over the next month is 2.95% and 9.32% over the next three months.

Comments

[random.observer]

For something closer to completeness in comparison, shouldn't we consider an estimate of short interest level for each of these data points? Of course, we'll never know exactly what they are/were because of the way exchanges decide to do record keeping.

[Damian]

What are you using as a definition of a bull and bear market?

[Justin]

Damian,

Our definition of a bull market in the S&P 500 is a 20% rally that was preceded by a 20% decline and vice versa for bear markets.