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Why the stock market probably won’t get back to even this year

March 9, 2020, 1:57 PM UTC
Kanok Sulaiman—Getty Images
Kanok Sulaiman—Getty Images

What are the chances that once the coronavirus scare recedes, that markets will stage a V-shaped rally that catapults stocks back to the best levels of 2020? For a year that started with a bang, then suffered one of the quickest slides from glory to panic in history, that would amount to V-for-victory.

Since hitting an all-time high of 3394 in mid-February, the S&P 500 shed 422 points or 12.4% by the market close on Friday, March 6. I was wondering in how many past years the market dropped sharply early-on, then rebounded to recoup all of its losses by December 31. An interesting twist in the math is at work. To recoup a 12.4% decline, prices need to rise by 14.2%, or 1.8 points more, because the 422 points rebound starts at a lower base––the March 6 closing price of 2792.

When I requested the numbers at midday from Fortune’s crack statistician Scott Decarlo, the gain required for the S&P needed to regain its highs was 15%. So I asked Scott to find the number of years since 1930 that the S&P had rebounded 15% or more between March 10 and year-end. (Not only is 15% is a nice round number, but we can already tell from Monday’s open that the benchmark is bound to shift wildly in the days and weeks to come.)

The data shows that over those 90 years, the S&P beat the 15% bogey on 22 occasions, or one-quarter of the time. Many of the jumps happened in years when markets were roaring out of a deep rut, including the temporary surge in Depression years (1935, 1936, and 1938), the durable World War II comeback in 1942 and 1944, as well as the big bounces in 2003 and 2009 following the tech and mortgage meltdowns. The S&P also rang the bell in long big bull markets, notably the mid-1950s (1950, 1954 and 1955), and the early 1980s (1980, 1982, and 1983). Last year, the index also made the grade by posting a 16.1% gain, capping in a string of great years following the end of the financial crisis.

It’s important to note that in thirteen of those 22 years, the S&P gained over 20% between March 11 and December 31. In seven other years, it rose between 10% and 14.9%. So in 29 out of 90 years, the S&P either got reasonably close to our 15% benchmark, hit the mark, or in more than half the 15%-plus cases, far exceeded it.

Concluding that the S&P has about a one-in-four chance to regain or exceed its nearly 15% drop from the peak isn’t a bad guess. You could also extrapolate from history that the odds are about one-in-three that you’ll get back within 5% of your losses. Those are about the odds of shooting a 7 on at least one of your first two rolls in craps.

History, however, may be overstating the chances of getting back, or getting close, to even. A march back to the mid-February summit wouldn’t be a snapback from a severe correction, a frequent source of big March to December moves. It would be a return to the over-exuberance that drove prices to big valuations on top of earnings that peaked at extraordinarily high levels, and are now falling. For the S&P to come all the way back, momentum would need to trump the fundamentals.

Don’t bet on it.

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