The SP 500 (^GSPC) fell on Friday, marking the ninth consecutive down day for the market.
The last time that happened was in December of 1980.
“That alone, no doubt, must terrify most investors and given the tightening of the US Presidential race (and Senate as well), investor anxiety has naturally been surging,” FundStrat’s Tom Lee acknowledged on Friday.
While this isn’t exactly a headline to celebrate, the streak alone doesn’t necessarily portend some sort of doom scenario for investors. Let’s consider a few things.
The market is not down 28%
First of all, the moves we’ve seen recently have been very small. Over those nine days, the SP 500 is down a measly 3%. This was a point made by traders on Thursday after the market had its eighth consecutive down day, which hadn’t happened since October 2008.
“A lot of trader-chatter this morning about the SP’s current eight-‘game’ losing streak — the first such streak since October of 2008 in the days following the Lehman collapse,” NYSE floor governor Rich Barry said in an email while the markets were open. “There is ONE major difference between the two, however. During the ’08 losing streak, the SP plummeted a total of 23%(!); whereas, over the past eight sessions, the SP is down a mere 2.8%.”
That 2008 sell-off streak ended on October 10, which was during the darkest moments of the financial crisis.
Today, there are arguments to be made about valuations being stretched in the market. But there isn’t a 2008-style systemic crisis permeating the financial markets and economy. Importantly, there is actually evidence that earnings growth may be picking up, which is bullish.
Losing streaks are usually followed by gains
FundStrat’s Lee examined what happened after the 25 times the SP 500 had recorded an 8-day losing streak. These instances included six 9-day losing streaks, three 10-day losing streaks, two 11-day losing streaks, and one 12-day losing streak (which occurred in 1996).
He found that on average, the SP would climb 5.0% and 9.0% in the three months and six months, respectively, following that eighth day of losses.
“Looking over the last 85 years, being down 8 consecutive days have only been significantly bearish 5 times (of 25) with significant further losses over the next 6 months—those years are ’31, ’66, ’69, ’77 and ’08,” he observed.
Every single time the losing streak ended after the ninth day, the market was up during the three and six months that followed.
Of course, this is no guarantee of good times ahead either. It just speaks to the complexity of investing in the stock market. Importantly, you’d probably be ill-advised to make trading and investing decisions based on streaks alone, especially with no consideration of the magnitude of the moves or what may be causing the moves.
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Sam Ro is managing editor at Yahoo Finance.