The 1%…Drops

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July 27, 2021

Another drop, another quick rebound last week. This is the 7th time this year that the S&P 500 has retraced 3% from the highs and each time it’s been a swift return to highs. As I write this (after Friday’s and Monday’s retracement), we are sitting just under 1% away from all time highs again, with 8 of 11 sectors positive for the week.

As most of you know, I get uncomfortable when the market is high and excited when prices drop. What can I say, I like bargains!  I love the apps that allow you to scan a barcode and find out which store has the best price, and then compare it on Amazon and try to save some more. The same applies to stocks.  You’d be astounded if you could see the number of my trades that never actually get executed as I leave orders in the system at prices I would to buy orders at, looking for that bargain. 

What previously gave me the opportunity to bargain shop for a few days is now becoming hours. Any drop in asset prices this year has been quickly bought, as the buy the dip mentality is the underpinning of this cash rich economy.

The more pressing reason I feel more comfortable in daily drops of more than 1% can best be summed up in the following chart, dating back to the early 80s. The S&P 500 on average drops 1% or more every 8.68 days. Yep, roughly once every two weeks, on average that pans out to around 31 times a year this happens. But….

Just look at the returns of the overall market since that time and look how closely the yellow (which plots days of a decline greater than 1%) is to the overall index line. You know how mirrors sometimes say, “things are closer than they appear”, can be converted in market talk to “things look better the longer you look at them”.

I guess my point here is, we are playing the long game and you need to expect that asset prices will decline 1% or more (every 8.68 days on average) but train yourself to look beyond this. Look at the averages, and that can get you in tune with my thinking, but more importantly future outcomes. Remember the market is a crapshoot in the short term, predictable in the long term.

With that here’s the Buy/Sell.

Mick Graham, CPM®, AIF®

Branch Manager/Financial Advisor at Raymond James in Melbourne, FL

Any opinions are those of Mick Graham and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Past performance does not guarantee future results. Keep in mind that individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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