This is from my recent post on
talkmarkets.com:
Looking at the weekly close on the S and p 500 since 1950 its average
close stands at 522 while the standard deviation stands at 606. One of
the few markets in the world where the standard deviation exceeds the
mean. This is also true with other US Indices like the Dow and the
Nasdaq but is not the case with Emerging markets. This has been the case
with US markets since 1998 when the FED intervened in the market to
bail out the failing LTCM. Subsequent Fed intervention has caused the
risk in the market to go up and not come down.
Taking this a step further looking at where we are now we are sitting
at well over 3 standard deviations over the mean. Earlier situations
like this produced corrections in excess of 15%. Lets take a look at
some of them:
S and P 500 Returns from Peak at about 3 Standard Deviations above the Mean
| Time |
Standard Deviations above Mean |
%Loss from Top |
| August 1987 |
4.57 |
33% |
| July 1998 |
4.93 |
18% |
| March 2000 |
4.63 |
26% |
| May 2001 |
3.20 |
25% |
| October 2007 |
2.84 |
56% |
| July 2015 |
3.04 |
16% |
This is not to say the markets will start crashing tomorrow but given
the insane valuations and the fact that we have not visited the long
term average on the S and P 500 which stands at 522 since 1974, the
risks are out there!
