S&P 500

‘Can You Feel The Tension?’ Grab The Scotch, History Says This Correction Could Get Deeper

"Can you feel the tension, in the air right now?"

“Can you feel the tension, in the air right now?”

“I know I can. I can feel it, down in my plums.”


We were one late Friday afternoon panic bid away from logging the worst week for the S&P since the depths of the crisis. So thank God for that late afternoon Jim Cramer-assisted ramp, because if it weren’t for that, this is what would have happened:


Yeah. That.

And you know, even when you take into account the Friday afternoon “Simple Jack” rally, this was still a horrendous week for equities. Bottom line: the bull bleeds. And if it bleeds, “we can kill it.

Another fun factoid from last week: with Thursday’s massive losses, the S&P entered a technical correction. That, as Goldman writes in a new note, “ended its 499 day streak without a 10% drawdown, matching the 8th longest stretch since 1930.”

So what happens next? That’s the multi-trillion dollar question.

Investors will have two days of respite to gather themselves and try to numb the pain with their choice of inebriating substances. My suggestion: go ahead and splurge on two bottles of Balvenie Doublewood (the 12-year is fine). You’ll want to have two drinks per hour and you’ll need to supplement that by blowing two lines of crushed up Ativan every two hours. Don’t pay more than $3/each for the Ativan – I don’t care what mg they are. Anyone selling benzos for more than $3/each is getting too greedy.

Ok, so while you’re floating around in your Balvenie/benzo haze, it’s worth looking back at history for clues as to what to expect going forward. Here’s Goldman to help:

Most equity market corrections recover without developing into bear markets or presaging recessions. There have been 16 drawdowns of 10%+ since 1976. Of the 16 corrections, only five occurred around a recession. Of the remaining 11 non-recession episodes, 1987 was the only one that turned into a bear market (i.e., a decline of 20%). A bear market would mean the S&P 500 falls below 2300, which history suggests is unlikely to occur without a recession. Our economists believe the probability of a recession remains well below average, given strong global GDP growth and loose financial conditions. Earnings fundamentals also remain strong. Since the market peak, consensus 2018 EPS have been raised by 2%. Consensus EPS expectations rose by a median of 1% during corrections not associated with recessions compared with a decline of 3% in recession corrections.


Zooming in those 11 non-recession corrections, what was the average drawdown, and how long did it take to recover? Well, here’s the chart:


So basically, S&P declines roughly 15% during non-recession corrections. That would put us at SPX 2,450. Normally, it takes about 70 sessions for these things to play out and another 88 sessions to recover the losses. If history is any guide.

And you know, “history” is always – always – a reliable “guide” right?

“Stock” up – just not on equities…



7 comments on “‘Can You Feel The Tension?’ Grab The Scotch, History Says This Correction Could Get Deeper

  1. Considering how long you’ve been beating this drum (thankfully+++ I listened),
    WW / H you can say “I told you so” many+ times. I love being right too.
    Hadn’t watched The Big Short since it was released. Think I’ll stream it and
    burn some natural “Hawaiian” this weekend. Now where’s those Cheetos?

  2. ” 70 sessions for these things to play out”. You mean 70 sessions to know if this is going to trend back up or continue going down?

  3. I don’t understand Exhibit 2. Why wouldn’t the current line start at the same 15% peak as the average line?

    • You point out the important part in exhibit 2. No other correction like this was preceded by such a swift run-up. Hence, for this current correction, we’re only right back to where we were in November! That this starting point is so much lower than the average and range of the other corrections, and that we are only just getting there, suggests to me that this correction could go deeper. Or at least it would suggest it if I put any credence into this type of comparison whatsoever, which I don’t. It’s pre-school level thinking.

  4. “Drink Scotch whiskey, all night long, and die behind the wheel.”

  5. Technically, the 14 Year is Caribbean Cask anyway, not the DoubleWood. I think the short-volatility crowd should turn to some Lagavulin, so that the smokiness on the palate matches the smoke coming from their account statements. The crypto crowd can just keep up with the Jameson shots until they throw it all up.

  6. Well.. Even the blind squirrel finds the Acorn once in a while..

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