From January 4th, the S&P 500 has fallen close to 10%. A monthly decline of this magnitude has occurred 15 times in the last 50 years; and of those 15 times, 11 have occurred during recessions. We are not in a recession and our proprietary recession model currently forecasts a 4.3% probability of recession in the next 18 months (that is extremely low). Therefore, we don’t think this is the start of the next major bear market.
With that in mind, we have been monitoring a plethora of technical indicators to help us assess where we are in the correction process. We can compare current technical conditions to the conditions that were present at the bottom of non-recessionary corrections of 10% since 2010. The table below shows just a few of these indicators.
S&P 500 Decline
3 Month Rate
6 Month Rate
50 Day MA
200 Day MA
Source: Stockcharts.com and Ned Davis Research as of 1/26/2022
[From a rate of change perspective, we are currently experiencing a quicker but less advanced decline in terms of time. Breadth has significantly deteriorated although more breadth deterioration is possible before we reach a bottom. However, sentiment is very pessimistic, and investors are pricing in a large degree of volatility. Could equities continue to decline from here? Of course, they can. Midterm election years tend to remain very choppy for the first half of the year. But as we see it, we are in the final innings of this correction.
Sean Dillon CMT, CFTe®
Vice President of Investment Strategy
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). For additional information, please visit our website at www.congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.