The 20-day 10% correction in S&P 500 is 5th fastest in past 75 years. 5 prior declines were similar "knee jerk" reactions that saw gains 100% time 3M, 6M and 12M later Array ( [cookie] => 22b8a1-48f21b-8c2629-9ea011-a2add8 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 137749 [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: This 10% correction is the 5th fastest in the last 75 years and history argues this is indiscriminate rage selling.

Please click below to view our Macro Minute (duration: 7:23).

Equity markets fell 10% in the past 20 trading days, on the heels of escalating tariff war fears and DOGE fallout leading to a slowing economy. This decline is the 5th fastest in 75 years and as we discuss below, the precedent instances all proved to be “rage selling” panic declines that saw reversals one month later.

• The decline in stocks since mid-Feb has been relentless and painful. And many clients have asked us what is discounted at this point (how deep a decline) and when will markets make a stand (attempt to bottom). From a timing perspective, Mark Newton, our Head of Technical Strategy, has flagged 3/14 Friday as a possible next window for markets to make a stand. And to us, this week makes sense.
• What is notable (and widely discussed) is the 10% fall in equities surpasses the related move in corporate bonds (relatively stable). There are several possible interpretations, but here is our take:
  – Stocks reacting to uncertainty of “tariff wars” plus DOGE and the resulting fallout on the economy
  – White House says “there is no equity put” but there is an economy “put”
  – By contrast, Bonds see “Fed put” coming into play
  – For a correction worse than -10% has to be both:
  a. recession >50% probability and
  b. ZERO Fed “put”
  BOTTOM LINE: -10% decline from 2/18 is 5^th fastest ever
  – 6 of 6 times, higher 3M, 6M and 12M later (BTFD)
• We know the reasons stocks are down (tariffs, economic weakness, etc). But we think corporate bonds have held up due to the Fed put coming back into play. We know this because the odds of a May cut are now 54% (10% in Jan) and 3.4 cuts are priced in 2025, versus Fed guidance of 2.0 cuts. The Fed put is also a “put” on stocks. So we see this as positive divergence. Stocks do not have to fall further from here given this “put” existence.
• Moreover, since 1929, the median decline of stocks in a recession is 24%. The 10% decline therefore implies a 40% chance of a recession. Are the actual odds higher than that? The tariff wars is the key, and a protracted one would be devastating. But here is the irony:
  – the 4 regions targeted by Trump are Canada, Mexico, Europe and China
  – since Feb 11th, 4 of 4 of these markets are outperforming USA
  – markets do not see a protracted trade war.
• Thus, we think stocks have over-reacted to the downside. This is also evidenced by looking at the 6 precedent cases where stocks fell 10% in less than 20 days since 1950:
  – date # Days Cause
  – 2/27/20 8 COVID
  – 2/8/18 13 Trade War 1.0
  – 10/11/55 18 Eisenhower heart attack
  – 6/29/50 17 Korean War
  – 10/25/79 20 Volcker Shock
  – 10/27/97 20 Asian Financial Crisis
• Each of the above is a “fire ready aim” moment, especially the start of the pandemic. At that time, equities fell 10% in only 8 trading days. As shown below (see table), the stock market is higher 1M, 3M, 6M and 12M later:
  – 5 of 6 times, higher 1M later (except covid)
  – 6 of 6 times, higher 3M later, median gain 9%
  – 6 of 6 times, higher 6M later, median gain 15%
  – 6 of 6 times, higher 12M later, median gain 21%
• You get the picture. Stocks over-reacted to the downside and this is arguably the case yesterday. Especially considering the bond vs stock divergence. And considering the fact a 40% odds of a recession is priced. And the fact that Fed put is being priced into bonds.
• Bottom line: Stay the course. Fed core CPI reported Wed am.

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Key incoming data March:

• 3/3 9:45 AM ET: Feb F S&P Global Manufacturing PMI Tame
• 3/3 10:00 AM ET: Feb ISM Manufacturing PMI Tame
• 3/5 9:45 AM ET: Feb F S&P Global Services PMI Tame
• 3/5 10:00 AM ET: Feb ISM Services PMI Tame
• 3/5 10:00 AM ET: Jan F Durable Goods Orders Tame
• 3/5 2:00 PM ET: Mar Fed Releases Beige Book Tame
• 3/6 8:30 AM ET: 4Q F Non-Farm Productivity Tame
• 3/6 8:30 AM ET: Jan Trade Balance Tame
• 3/6 8:30 AM ET: 4Q F Unit Labor Costs Tame
• 3/7 8:30 AM ET: Feb Non-Farm Payrolls Tame
• 3/7 9:00 AM ET: Feb F Manheim Used Vehicle index Tame
• 3/10 11:00 AM ET: Feb NY Fed 1yr Inf Exp Tame
• 3/11 6:00 AM ET: Feb Small Business Optimism Survey Tame
• 3/11 10:00 AM ET: Jan JOLTS Job Openings Tame
• 3/12 8:30 AM ET: Feb CPI
• 3/13 8:30 AM ET: Feb PPI
• 3/14 10:00 AM ET: Mar P U. Mich. Sentiment and Inflation Expectation
• 3/17 8:30 AM ET: Feb Retail Sales Data
• 3/17 8:30 AM ET: Mar Empire Manufacturing Survey
• 3/17 10:00 AM ET: Mar NAHB Housing Market Index
• 3/19 9:00 AM ET: Mar M Manheim Used Vehicle index
• 3/19 2:00 PM ET: Mar FOMC Decision
• 3/19 4:00 PM ET: Jan Net TIC Flows
• 3/20 8:30 AM ET: Mar Philly Fed Business Outlook
• 3/20 10:00 AM ET: Feb Existing Home Sales
• 3/24 8:30 AM ET: Feb Chicago Fed Nat Activity Index
• 3/24 9:45 AM ET: Mar P S&P Global Manufacturing PMI
• 3/24 9:45 AM ET: Mar P S&P Global Services PMI
• 3/25 9:00 AM ET: Jan S&P CoreLogic CS home price
• 3/25 10:00 AM ET: Mar Conference Board Consumer Confidence
• 3/25 10:00 AM ET: Feb New Home Sales
• 3/26 10:00 AM ET: Feb p Durable Goods Orders
• 3/27 8:30 AM ET: 4Q T GDP
• 3/28 8:30 AM ET: Feb PCE Deflator
• 3/28 10:00 AM ET: Mar F U. Mich. Sentiment and Inflation Expectation
• 3/31 10:30 AM ET: Mar Dallas Fed Manuf. Activity Survey

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