If you have been an active participant of the markets recently then you might have noticed that the start of the 4th quarter 2018 was not a good one. In fact, through the first half of the fourth quarter the S&P 500 fell nearly 10% in a brutal, steady selloff leading many to think this is the start of a new bear market. Today we look at some of the stats, and history to see just how bad it really is and what could we expect going forward.
The first half of the fourth quarter produced a selloff of 9.1% which comes in as the 6th worst start to the fourth quarter in the entire history of the S&P 500. Other weak starts to the 4th quarter came in 1929 through the great depression years, 1973, 1987 (which was a very challenging year) and 2008 which many of us remember why.
So, the real question is where did the markets end after such a strong selloff and what typically happens this time of year. Well, if we look at the top 25 worst starts to the 4th quarter we find that by the end of the year the average return was actually +2.77%. This means the markets actually recovered their initial selloff. In fact the markets recovered from that selloff 78.26% of the time and only 5 of the top 25 strongest selloffs to start the 4th quarter finished in the red.
Now, if we go back and look at the first half of the 4th quarter for every year since 1929, we find that the average gain by the end of the year is 1.61%. While we still are waiting on the results of this year, it helps one to realize that even in the face of all the media hype around selloffs that the stats are still on your side to push through and ride it out.