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Frequency Of ~10% Stock Market Shocks Over The Past 12 Years

Feb. 11, 2021 12:27 AM ETVanguard S&P 500 ETF (VOO)
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Seeking Alpha Analyst Since 2009

My name is Mike Sandifer. I am a former stockbroker and like to share my perspectives on investing, from both the micro- and macroeconomic angles.

I offer a US stock market signal service to alert investors about coming major movements in stock indexes such as the S&P 500, and the Dollar index, based on expected changes in economic growth. I not only warn about direction of major market movements, but also magnitude, with surprising precision.

Coupled with that, is a stock portfolio stress-tester/watch list, with which subscribers can calculate the effects of the predicted changes in economic growth on their particular stock holdings, both individually, and as a portfolio. This is done, again, with surprising precision. This is still under development, but will be available in beta soon.

Visit my website below for more information.


  • Alarm bells?

Presumably, nearly everyone is aware that the US stock market is volatile, but just how common have shocks in the ~10% range been over the past 12 years?

I define “shocks” here as sudden movements in the value of the S&P 500, with sudden meaning taking far less than 6 months to occur. I examine the period over the past 12 years, as a matter of convenience, as that is the extent of the FRED S&P 500 database:

S&P 500 12 Year History

So, here’s a list of negative shocks in the ~10% range over this period, which one might call “crashes”:

2011: -17.9%, -9.8%

2012: -9.9%

2015: -12.2%

2018: -10.2%

2018-2019: -19.8%

2020: -33.9%

And, here is a list of positive shocks of that magnitude, over the same period:

2011: 16.9%

2011-2012: 22.4%

2012: 14.7%

2015: 10.8%

2016: 14.9%

2019: 25.3%

For the buy and hold investor who doesn’t want to be bothered with any strategy beyond dollar cost averaging, simply staying pat and weathering the volatility certainly has paid off, in the long-run since. However, for those who’d like to be more strategic, there are additional profit opportunities to be had, whether via simply managing cash balances versus stock holdings, and/or using options. Even conservative investors can benefit from sometimes writing covered calls or puts.

That’s why I offer the Stock Cassandra signal service, to alert subscribers to just such coming opportunities. Why not have a portfolio alarm service, just as many have alarms for their homes, businesses, or cars?

The indicators I reference to provide this service, with the way the information is processed, predicted all of the above shocks, and many smaller ones over the same period. Warning indicators go from fractions of a single standard deviation, or less than one sigma, to over 3 sigmas. The degree of statistically significant deviation is directly related to the magnitude of the coming market shock.

The warning for the crash associated with the beginning of the Covid-19 crisis, and then the beginning of the recover, were the only 3 sigma alerts over this period. The alert for the pandemic crash began to sound in December of 2019.

So, while many seemingly such signal services exist, I’ve never seen one with the track record this one has, and that also predicts the magnitude of the coming stock market shock with such precision. And even better, when the portfolio stress-tester is soon released, subscribers will be able to translate Stock Cassandra shock alerts into predictions for effects on their personal portfolios, by loading their holdings in the the watch list using guidance provided in alerts.

As illustrated here, in pictures, the translation of predictions of changes in the S&P 500 index into changes in individual stock holdings is perhaps more precise than most imagine.

The Stock Cassandra alerts are already available to paid subscribers, at a rate of only $5/month, which also affords access to the Exact Macro Small Cap Tech Stock List, of which 4 stocks have been added with more to follow. The average return is already up almost 8% since introduction, last week.

The whole point of founding Exact Macro was to try to get beyond messy statistics and use more precise, deterministic models to better understand macroeconomics and its impact on investors. It is part of an effort to make macroeconomics something closer to an exact science.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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