The S&P 500 fell 7.2% in September, the worst loss in a string of 5 consecutive monthly declines for the S&P 500 since May. What are the odds of the S&P 500 falling 6 months in a row?
My view continues to be that a bear market began after the S&P 500 closed at 1363 on April 29th. Furthermore, I believe equity markets are headed lower as the U.S. economy is either already in or about to tip in to another recession.
However bear markets can often produce short, sharp rallies that ultimately fail but still produce positive monthly returns for the stock market. Consider for example that during the worst of 2008, the S&P 500 plunged 30% from the end of August until the end of November, and then a further 25% from the end of November to the bottom in early March 2009. However December 2008 was an up month for the market, albeit a mild 0.8% rise.
Since 1950, the S&P 500 has declined 5 or more consecutive months on 7 occasions excluding the current instance. On 4 out of those 7 occasions the S&P 500 went on to decline for a sixth consecutive month. In 1974 the S&P 500 declined for a shocking 9 months straight. In fact the S&P 500 declined 11 out of 12 months in 1974, October being the only exception. And for the 2 year period beginning in January 1973 and ending in December 1974, the S&P 500 recorded declines in a stunning 20 out of 24 months.
Now you might be wondering what the great depression period looked like, surely there must have been some nasty consecutive monthly declines in that era right? Unfortunately I don't have S&P 500 monthly data back that far but data is available for the Dow Jones for that period. Surprisingly, despite the worst bear market in history in terms of percentage declines, 4 consecutive monthly declines is the worst during the depression. 5 consecutive monthly declines does not show up until late 1937.
So where does all this leave us? Unfortunately nowhere closer to knowing whether October 2011 will go down as yet another monthly decline for the S&P 500, however based on the very limited data set we have, the least we can say is that it is a very real possibility. Note that out of the 7 instances prior to the current one, only the 1966 experience did not occur either immediately prior to or during a recession.