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Sam Stovall's Sector Watch : Standard & Poor's Equity Research
October 6, 2015 11:00 AM EDT
Page 1 of 2

HISTORICAL HANDICAPPING
If someone were to ask, "Describe the difference between these three analytical
disciplines: fundamental, technical and historical," a simple response could be that
fundamentals suggest "why," technicals point to "how far," and history hints at "when."
Today, the S&P 500 is in correction mode, hav...

If someone were to ask, "Describe the difference between these three analytical disciplines: fundamental, technical and historical,"
a simple response could be that fundamentals suggest "why," technicals point to "how far," and history hints at "when." Today,
the S&P 500 is in correction mode, having fallen more than 10% from its all-time high on May 21, 2015. Fundamental analysts
blame the collapse in oil prices, the projected S&P 500 profit recession, the foot-dragging by the Fed, and the slowdown in China's
economic growth, along with the rising risk of a U.S. recession, as reasons for the selloff. Technicians have shown that much of the
market's moves since mid-August have been dictated by support and resistance levels, and that Friday may have been a key reversal
day. Finally, stock market history says that should this decline not morph into a new bear market, it has a high probability of
ending in October. It could also trigger an impressive fourth-quarter rally, and should propel the S &P 500 back to breakeven by
February of 2016. Of course, the odds also point to the first time in post-WWII history that the S &P 500 recorded a decisive
decline during the third year of a president's term in office.
Well, it finally it happened. No, not a Fed rate increase, but a stock market correction. Indeed, the S &P 500 went 44 months since
the last decline of 10% or more, as compared with the median of 12 months (and mean of 18) between such declines since WWII.
What's more, this was the third-longest stretch between 10%+ declines, with the longest being the 84 months from 1990-97,
followed by the 55 months from 2003-07, and tied with the 44-month stretch from 1962-66. (Two of these three ended up falling
into new bear markets, while the third slipped into a 16% correction.) The correction of 2015 arrived on August 24 for the S &P
500, and set a low of 1867 on the 25th. Finally, in the 30 trading days through September 30, the "500" endured 10 days of 1%+
daily closing price declines, more than twice the average rolling 30-day period since 1951.
Duration & Recovery
So the outstanding questions are: When will this correction be over, and when will the S &P 500 get back to breakeven? Well, if
history is any guide, for it's never gospel, this correction has a good chance of concluding this month, if it hasn't already ended.
Duration: There have been 19 corrections since WWII. On average, these corrections took five months to go from peak to trough.
And since this correction started in May, October conveniently pops up as a potential bottoming month. In addition, October has
been the market's favorite month in which corrections and bear markets came to an end. In the 31 declines of 10% or more since
WWII (19 corrections and 12 bears), 32% of them ended in October, which was twice the frequency of the next highest month
(March) and more than three times the third-highest month. Indeed, five of the last 10 bear markets ended in October, as did five
corrections, with the most recent near-bear correction of 2011 (-19.4%) ending in early October. Of course, there is no guarantee
that current headwinds will abate by the end of October, but history does point to a traditional shift to more favorable tailwinds
starting in the fourth quarter of the year.
Recovery: Once the correction low is in place, the healing process will begin. And should the low occur in October, the healing
will be aided by a traditionally strong end-of-year rally. During the fourth quarter of all years since 1945, the S &P 500 rose in
price 77% of the time and gained an average 3.8%. This return and batting average are superior to the other three quarters of the
year. In addition, October bottoms for corrections and bears tend to set up the market quite nicely for a final-quarter surge. Indeed
in the 10 fourth quarters following the five bear markets and five corrections that ended in October, the S &P 500 gained an
average of 6.4% and rose in price 90% of the time, falling only once (1957), since the market's bottom was so deep and late in
October. So if history should repeat, this year's fourth quarter could offer a nice recovery tailwind.
Take the correction of 2011 for example. The S&P 500 peaked on April 29 and bottomed on October 3, declining a total of
19.4% over a five-month period. Year to date through October 3, 2011, the market was off 12.6% (This year, the S &P 500 fell

Copyright 2015 Standard & Poor's Investment Advisory Services LLC. The information contained in this report may not
be published, broadcast, rewritten or otherwise distributed without prior written consent from S&P Capital IQ.

Sam Stovall's Sector Watch : Standard & Poor's Equity Research
October 6, 2015 11:00 AM EDT
Page 2 of 2

HISTORICAL HANDICAPPING Sam Stovall's Sector Watch Continued
12.4% from May 21 through August 25, recording a 9.3% YTD decline, and possibly a successful retest on Sept. 28.) In Q4 2011,
however, the "500" surged 16.8%, allowing the S&P 500 to close the year near where it started. Indeed, one needs to go out to
the third decimal place to know that the year actually fell in price.
Following a possible Santa Claus rally in 2015, history says that the S &P 500 would then be on track reach breakeven sometime in
February, 2016, since the average correction took four months to recover all that it lost in the prior decline. In 2011, the S &P 500
got to breakeven on February 24, 2012, fewer than five months after bottoming. Back then, some said the market went too far, too
fast, when it actually took almost a month longer than it normally did to recover from an average correction.
Sector Standouts
The old saying that a rising tide lifts all boats applies to S &P 500 sector performances in the fourth quarter as well. Since 1990,
the S&P 500 gained an average of 4.9% and rose in price 80% of the time. In addition, all 10 of its sectors advanced in price from
more than 6% for Consumer Discretionary, Consumer Staples and Technology, to less than 4.5% for Energy, Financials, and
Utilities. From a batting average perspective, five sectors gained in price at least 80% of the time, while none rose less than 64% of
the time. Indeed, Consumer Discretionary, Consumer Staples, Health Care, Industrials, and Technology posted market-beating
average price increases, and rose in price more than 75% of the time.
Sub-Industry STARS
Drilling a little bit deeper we find that 15 sub-industries in the S&P 500 have three Q4 characteristics in common: 1) They have
been in existence for at least 20 years, 2) they recorded an average Q4 price increase exceeding the S&P 500's, and 3) they rose in
price at least 75% of the time. In addition, each has an aggregate S &P Capital IQ STARS of at least 4.0 (Buy). Please visit S &P
Capital IQ's MarketScope Advisor to see which stocks within each sub-industry are ranked 4- or 5-STARS (or go to
Trymsatoday.com for a free trial).
So there you have it. Should history repeat itself, and there's no guarantee it will, the correction in the S &P 500 either has already
ended or will likely come to an end this month. What's more, stocks have a high probability of benefiting from an impressive
end-of-year rally, and the S&P 500 will likely recover all that it lost in this correction by February of next year. Be forewarned,
however, that chances also favor a down year for the S&P 500 - the first for a third year of the presidential cycle since WWII.

Copyright 2015 Standard & Poor's Investment Advisory Services LLC. The information contained in this report may not
be published, broadcast, rewritten or otherwise distributed without prior written consent from S&P Capital IQ.


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