This Has Happened Every Single Time In the History of the S&P 500

Stock Market Below is a portion of a recent article from "The Motley Fool". The author makes a few very good observations about long-term investing in the U.S. stock markets. None of these observations are new or unique, but I think they are well worth reviewing. After reading it, I found myself thinking about one of the points in a slightly different way. That is, that there is one thing that has happened every single time in the history of the S&P 500. 100% of the time, the S&P 500 has recovered from corrections and moved to new highs! This is good news for long-term investors. Other points worth noting are that stock market corrections are more common than may people realize, and that they tend to not last very long. 

The Stock Market Has Done This 37 Times Since 1950
Spoiler alert: You can’t keep a good market down
by Sean Williams
appeared on on April 25, 2019

In case you haven't noticed, the stock market is having one of its best starts to the new year in a very long time. According to data from Bespoke, courtesy of CNBC, the broad-based S&P 500 (SNPINDEX:^GSPC), the most-encompassing measure of stock market and economic health in the United States, has historically averaged a 2.2% gain in the first quarter. But through the end of March 2019, the S&P 500 had logged a 13.1% gain.

Best of all, things haven't slowed in April, either. Nearly a fifth of the S&P 500 stocks (94 companies in total) have seen their share prices rise by at least 30% year to date through April 23.

More important of all, though, the S&P 500 came full circle on Tuesday. Although it failed to surpass its all-time intraday high of almost 2,941, it recorded its highest close in history at 2,933.68.

Long-term investors are still batting 1.000

For those who may recall, the stock market underwent its steepest correction since the Great Recession during the fourth quarter of 2018. The S&P 500 wound up declining 19.8% from peak to trough over a 95-calendar-day period, courtesy of data from Yardeni Research, just missing out on the first bear market since early 2009, based on closing values. But with its ascent to a new closing high on Tuesday, the S&P 500 did something that's been done only 37 times since the beginning of 1950: It completely erased a stock market correction.

Stock market corrections themselves are actually far more common than you realize. If we were to only count those corrections that hit at least 10% since 1950 (i.e., no rounding-up allowed), we'd see a bona fide correction, on average, every 1.89 years. Understandably, the stock market doesn't follow averages, even if market pundits would like to typecast the market into doing so. Sometimes we can go years without a correction, whereas in 2018 we saw two within a reasonably short time frame.

And while corrections are common, they also don't tend to last very long. In total, 23 of the past 37 corrections have found their bottom in 104 or fewer calendar days, with just two corrections lasting longer than 288 days since 1982. This, in turn, means that the stock market has spent the vast majority of its time rallying or treading water since 1950, which is good news for investors with a long-term horizon.

Data also backs up the thesis that remaining long during even the most turbulent times is investors' smartest move. According to the Get Invested, Stay Invested: Navigating Volatile Markets report from J.P. Morgan Asset Management, an investor in the S&P 500 who stayed the course for 20 years, between Jan. 1, 1998, and Dec. 29, 2017, would have earned a 7.2% average annual return.

Mind you, this period includes the two largest declines in the stock market since the Great Depression (the dot-com bubble and Great Recession). But if you had tried to time the market and missed even the 10 best days, your return was essentially halved. Since many of the stock market's best days occur within days or weeks of its worst days, rolling the dice by trying to time the market simply isn't worth it.

Long-term investors are a perfect 37-for-37 with regard to putting corrections in the rearview mirror over the last 70 years (and really since the inception of the stock market). So, while you're probably thinking that the stock market has come too far, too fast in 2019, understand that in perhaps three months, three years, or 30 years, you'll be looking back and wondering why you didn't just continue to buy anytime you had spare money to do so.

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