Will the Standard & Poor’s 500 stock index succumb to the Wall Street bear that’s stalking it. The large-company stock index kicks off Thursday’s trading session down 13.1% from its record closing high of 2130.82 from May 21, 2015, or nearly nine months ago. The good news is the average length of time the S&P 500 has taken historically to succumb to the full 20% drop into bear market territory is also nine months, according to Sam Stovall, U.S. equity strategist at S&P Global Market Intelligence.
But there’s some not-so-good news, too, Stovall adds: “Seven of the 12 bear markets since World War II required an average of more than 20 months before falling 20%.” So a bear can’t be ruled out quite yet. Indeed, it might take proof that the U.S. economy is not falling into recession before investors step in and buy stocks with enough conviction to turn the market back up, Stovall says.
And with the S&P 500 down more than 1.7% in pre-market trading Thursday, talk of a looming bear market is likely to intensify. The small-cap Russell 2000 stock index is already in a bear market, and the tech-packed Nasdaq composite is flirting with a bear, already down 17.9% from its July 2015 peak. For chart-watchers wondering when and where the floor under the market will either hold or give way, keep a close eye on the 1,820 area, Stovall advises. More specifically, the intraday low of 1,812 the S&P 500 sank to on Jan. 20.
“A breach of these levels would be substantially bearish developments and would open the door for an accelerating decline toward lower big-picture support in the area of 1,625-1,700,” Stovall says. The S&P 500 closed Wednesday at 1,852, so a fall to the low end of Stovall’s danger range equates to a further drop of 14%.