Some Thoughts on the Pullback

From the all-time high on July 26, until the recent closing low August 5, the S&P 500 slipped into its second pullback (decline of 5.0%-9.9%) of 2019 on an escalation of trade tensions between China and the U.S.

This decline dragged all S&P 1500 cap-sizes lower, as well as its 11 sectors.

This retreat was fairly swift by historical standards, as it took only 10 calendar days to go from its peak to the -5% threshold, as compared with the average of 27 days required by the prior 57 bull-market pullbacks since WWII.

After bottoming, the pullbacks that fell the fastest also took the fewest days (27) to get back to breakeven, while the middle 1/3rd took 46 days to recover and the slowest 1/3rd required 65 days.

Therefore, should history repeat, and there’s no guarantee it will, if this decline remains in the 5%-9.9% range, we may see a final low within the week and a new high by the middle of next month.

The third quarter of 2019 is living up to its reputation as the period that has delivered not only the weakest average price increase since WWII, but also the lowest frequency of gains.

What’s more, Q3’s highest return in the past 73 years was the smallest quarterly high-water mark, while its deepest quarterly decline was worse than that for all others.

Finally, this typical Q3 underperformance was accompanied by the highest level of volatility, as its standard deviation of returns was more than 200 basis points above that of the next most volatile month.

So while this pullback looks as if it may soon run its course and that new highs might just be around the corner, this market may end up negotiating this curve on two wheels!