About every 4 to 5 months investors tend to forget that market corrections of 5% or greater occur about every….4 to 5 months. There was no exception as this played out again in May 2019 when we experienced the S&P 500 decline -6.9% in 4 weeks, the first monthly decline since the sharp drawdown from Q4 2018. The bigger picture tells us this was the 24th decline of >5% since 2009, which means that 5%+ corrections occur, on average, 2.4 times per year, or every 5 months. Although this information is useful, markets never follow a set schedule when it comes to volatility, but the data does demonstrate how 5%+ corrections are normal and routine.
Albeit, the speed with May’s decline was dramatic and quick (the 11th fastest monthly market decline we’ve seen from 2003 to 2019); however, to frame this latest episode in the context of other periods of market volatility there was nothing significant to note.
If we look at the intra-year market drawdowns over time, 2019 is, so far, the smallest intra-year market drawdown in the last 20 years (with the exception of 2013 and 2017). 86 of the last 92 years have seen an intra-year correction of greater than 5%. The only exceptions are 1954, 1958, 1961, 1964, 1995 and 2017.
May was historically normal and in line with every other period the market has declined in a similar manner. Historically, market drawdowns of this magnitude have provided opportunity for entry points into quality equity holdings for the long-term. Based on June’s reversion so far, it appears May’s volatility was no exception.