The following is an excerpt from Mark Hulbert | February 12, 2016 | marketwatch.com |
CHAPEL HILL, N.C. (MarketWatch) — The U.S. stock market over the next six months is more likely to be notably higher than it is to drop further.
I admit that this doesn’t seem realistic, given how terribly the market has been performing — including yet another triple-digit loss for the Dow Jones Industrial Average DJIA, +2.00% on Thursday. But a likely rally is what emerged when I studied all occasions over the last 120 years in which the stock market tumbled as precipitously as it has since late December.
At a minimum, therefore, you should be just as prepared for higher stock prices as for lower ones.
To reach this conclusion, I focused on drops in the Dow that were as steep as the one the stock market has suffered since Dec. 29: Over the 29 trading sessions since then, the Dow has fallen more than 11%. I analyzed all data back to the late 1800s, when the Dow was created.
What I found is summarized in the chart at the top of this column. Notice that the stock market’s subsequent returns following losses this big and fast were, on balance, better than the average of all days over the last 120 years.
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