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Dragged-Out Declines Typically Led to Longer and Higher Recoveries

S&P 500 Sector/Sub-Industry Price Returns

The S&P 500 topped out on May 21, 2015 at 2130.82. It closed on Friday, May 20, 2016 at 2052.32, only 3.7% below its all-time high.

Granted, the equity markets took investors for a couple of wild rides along the way, such as the 1000-point drop in the DJIA on August 24, as well as the worst opening-year performance for the S&P 500 since WWII, which tallied the correction’s decline at 14.2% through February 11. This correction took the fourth-longest amount of time to fall from peak to trough. History says (but does not guarantee) that it will therefore require more time than average to get back to breakeven. History also indicates that because of the dragged-out decline, the market will likely climb further (12.8%) and longer (179 days) than the average gain (9.5%) and duration (116 days) subsequent to the conclusions of all corrections since WWII.

S&P Global Market Intelligence agrees that the S&P 500 will probably have to wait until the uncertainty of the political convention season is behind us before setting a new, all-time high. However, we think that anemic global economic growth, elevated valuations and an aggressive Fed will likely keep the 12-month gain to the mid-to-upper single digits.

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