Nobody knows why the S&P 500 index declined more than 11% in October; the
largest decline since, well, earlier this year.
But experienced investors know that these declines are not unusual. Since March
2009, the U.S. stock market has seen 23 pullbacks greater than 5%; eight greater
than 10%. You can see all of them on the accompanying chart; on average, these
pullbacks have lasted 42 days and dropped prices by 9.3%. And this is during a
very long bull market!
Interestingly, the S&P 500 today isn’t the same as it was back when the current
bull market began; in fact, there are only 337 stocks remaining in the index that
were included on March 9, 2009. A small number—just 38 of them—accounted
for much of the runup in the index, each gaining more than 1,000%, led by
amazon.com , which has gained 2,350%, or nearly 40% a year. Amazon is
currently 25% off its highs—its fifth drawdown of 20% or more since 2009.
Is there a lesson here? Alas, we can’t extrapolate the short-term future from these
statistics. When stocks go on sale, it is often difficult to determine whether they
will become even better bargains in the days ahead.