How Does the Stock Market Bottom?

Despite the recent selloff, things are still relatively fine. I know nobody wants to hear this right now, but the S&P 500 is still up double digits over the last year and 36% over the last three years. What has people shook, understandably, is the speed of this decline.

Depending on where stocks close today, we could be looking at a 10% haircut in just five sessions. Over the last 20 years, this only happened during the Yuan devaluation in 2015, the Eurozone crisis in 2011, the GFC in ’08 and ’09, and the dotcom bubble in ’00, ’01, and ’02.

Over the next few days, or maybe even weeks and months, people are going to be looking for signs of a stock market bottom.

On December 27th 2018 I wrote, “The Dow just had its best day since March 2009, having many of us wondering, was this the bottom? Is the bear market over?”

Yes, it was.

On that day there were a lot of people saying “this is not how the stock market bottoms.” For the record, in no way am I saying I called the bottom, I didn’t, and was probably one of the people thinking that, even if I didn’t say it publicly.

At the time I remember being worried because stocks just could not catch a bid. For five straight days, the market tried to rally off their lows and failed. On the sixth straight day of selling, there was no attempt at a recovery. The wheels completely fell off.

The reason I was so concerned is because market crashes typically happen from periods of weakness, like December 2018.

In October 2008, for example, the S&P 500 was 26% off its highs. It fell another 16.8% that month, and had another 31% to go before reaching its final nadir. In December 2018, I wasn’t remotely thinking we were about to experience another 2008, but I absolutely was worried about the potential for another whoosh lower.

And then, the next day, it stopped. Not with a whimper, but with a bang. The biggest gain in 2,458 sessions.

Stocks can bottom with a bang…

…with a rally and retest

…or with a fizzle.

There are no rules for how these things play out, if there were, we would all be following them.

The most important thing for investors that are worried, and that probably includes all of us, is to keep in mind that this too shall pass. It may be at lower prices, it may get more frightening, but this is what we signed up for.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.