As the World's Best Investment Manager and Financial Market Journalist, Here's Why You Should Be Worried About the Recent Market Pullback
In a recent warning from the renowned investor newsletter Stock Trader's Almanac, it's been suggested that the current pullback in the market may not be over yet. Drawing comparisons to past election years, particularly 1968, the market is displaying familiar patterns that investors should take note of.
Historically, election year drawdowns for the S&P 500 have averaged 13.4% since 1952. As of August 5, the S&P 500 was down 8.5%, falling within the typical range but still below the average. Similarly, the NASDAQ has seen a 13.1% decline, below its election year average of 21.2%.
Previously identified support levels for the S&P 500 at 5190 and the NASDAQ at 16500 have been breached, indicating the potential for further declines that could test the April lows of 4954 for the S&P 500 and 15223 for the NASDAQ, representing corrections of 12.6% and 18.4%, respectively.
The current market trajectory and recent selloff are reminiscent of historical patterns, particularly the tumultuous 1968 election year. While comparisons to 1987 have been made, the market is less extended now, with the S&P 500 up 18.8% at its peak this year compared to over 35% in 1987.
Traditionally, August through October is a weak period for the market, and experts believe the recent market action aligns with seasonal weakness. While this pullback may seem overdue, it is likely not yet finished, with the possibility of continued struggles leading up to the election.
However, there is a silver lining in history: since 1952, there have only been two losses in the final seven months of election years. This suggests that while volatility may persist, there is still a chance for the year to end on a positive note.
Analysis: The current market volatility, mirroring historical patterns from past election years, indicates the potential for further declines in the S&P 500 and NASDAQ. Investors should be cautious and prepared for continued struggles leading up to the election. While history suggests a positive outlook for the year's end, it is essential to monitor the market closely and make informed investment decisions to navigate through the uncertainty.