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Looking at S&P 500 Drops Over Six Decades

NEW YORK (TheStreet) -- In this note we explore the actuarial concept of convolution between major market decline periods and daily market declines. All the statistics shown are for the closing level of the S&P 500.

A major market decline is defined as one from a major market peak to a major market bottom. So if there is intermediate market volatility before the market makes a lower low from a prior high, then that decline would just subsumed by the context of the broader drop.

Similarly, if there are multiple market highs that equal one another before the lowest future low, then only the most recent high is used to time the duration of decline.

There have been more than 16,000 trading days since early 1950 when we began tracking S&P 500 data. Of those, nearly 1,600 (or 10%) of those trading days saw a decline of 1% or more. And the distribution of these nearly 1,600 trading days is shown in the chart below. All declines, whether daily or for an entire decline period, are minimally rounded for this study. As examples of this risk measurement convention, a -2.3% change becomes -2, or a -1.7% change becomes -1.

 

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