70% chance of correction in 2018 according to Vanguard - Highest in 15 years

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Tamales
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Tamales » Wed Jan 17, 2018 11:24 pm

There hasn't been a drop of >9% in the SP500 from the most recent high since 2/11/16 (which ended a 13.3% drop from 11/3/15, and that in turn ended a 12.97% rise from 8/25/15).

There have been a couple drops since 2/11/16 (such as the ones that ended 6/27/16, 11/4/16, 4/3/17) but none that was more than 9% from the most recent high so using the 9% trend reversal trigger, the trend is still in place.

I pulled this data quickly so I don't guarantee it's 100% correct, but here are the periods since 1950 of at least 2 continuous years when there were no drops of >9% from the previous trend break:

7-17-50 thru 9-14-53 (3yr 2mo)
10-22-57 thru 10-25-60 (3yr)
10-23-62 thru 6-28-65 (2yr 8 mo)
7-24-84 thru 9-29-86 (2yr 2mo)
12-4-87 thru 1-30-90 (2yr 1mo)
10-11-90 thru 4-11-97 (6yr 6mo)
3-11-03 thru 8-15-07 (4yr 5mo)
6-1-12 thru 8-25-15 (3yr 2mo)
2/11/16 thru ?? (1yr 11mo and counting)

So (assuming the current one lasts at least thru 2/11/18) there have been 9 such periods of >2 years in the past 67 years. So not common, but not exactly rare either.
If you think you see a clear pattern in there, roll the dice. Otherwise, just ride it out.

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Kalo
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Kalo » Wed Jan 17, 2018 11:31 pm

I read a post by another Boglehead in another thread where he or she mentioned that it's not just knowing whether the market is overvalued, but you also have to know whether the market participants collectively think the market is overvalued. I thought that was a really good explanation of why it's so hard to predict market moves. I would give credit if I could remember who said it.

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.

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Re: 70% chance of correction according to Vanguard - Highest in 15 years

Post by mariezzz » Wed Jan 17, 2018 11:38 pm

Engineer250 wrote:
Wed Jan 17, 2018 8:20 pm
iceport wrote:
Wed Jan 17, 2018 7:41 pm
OkieIndexer wrote:
Wed Jan 17, 2018 4:28 pm
Ah, but it's possible the 10% correction could start 20% higher than where we are now. :wink:
And if it were to happen tomorrow, a 10% correction in the US market would only take us back to the beginning of October 2017, a little over 3 months ago. Amazing, really.

Vanguard Total Stock Market Index Fund, 10/01/2017 to 01/17/2018
This is what I was thinking of. During the year Brexit happened and we had a mini couple of down days and everyone was asking if it was a buying opportunity, I think folks pointed out the market had actually been lower a few months before? But no one was talking about that as a buying opportunity.

I guess I am suffering from that price normalization thing. Even 20% down just puts us back to 2016 prices.
Same line of thought ... a 5 percent drop takes us back fewer than 3 weeks. So a 10 percent drop doesn't sound so bad. More like a buying opportunity.

Earlier in this thread, someone provided a link (to show market corrections) to a web page. Interesting that it begins "The positive economic evidence and key technical indicators continue to support the outlook for further bull market gains; however, that does not rule out the possibility of a 5-10% correction in the months ahead, notes money manager and market historian ..."
https://www.equities.com/news/historica ... orrections

That page was dated August 3, 2017 - almost 6 months ago. So far, no correction. So difficult: prediction.

Tamales
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Tamales » Wed Jan 17, 2018 11:50 pm

Kalo wrote:
Wed Jan 17, 2018 11:31 pm
I read a post by another Boglehead in another thread where he or she mentioned that it's not just knowing whether the market is overvalued, but you also have to know whether the market participants collectively think the market is overvalued. I thought that was a really good explanation of why it's so hard to predict market moves. I would give credit if I could remember who said it.
"Collectively" implies a sudden drop when everyone bails at once. A catastrophic crash.
Even if you look at large historic declines or crashes, they are usually split into multiple fits and starts. The '87 crash for example. When it hit its low on 10-19-87, it then went up 14.9% then down 11.9% then up 12.3% then down 12.4% before it finally got back on track for an uptrend. So the "collective market" is really several collections of different opinions on different time scales (but they often get in relative sync for extended periods during uptrends). In other words, it's even harder to predict than the "one collective entity" market that you've described.

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Phineas J. Whoopee
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Phineas J. Whoopee » Wed Jan 17, 2018 11:57 pm

Kalo wrote:
Wed Jan 17, 2018 11:31 pm
I read a post by another Boglehead in another thread where he or she mentioned that it's not just knowing whether the market is overvalued, but you also have to know whether the market participants collectively think the market is overvalued. I thought that was a really good explanation of why it's so hard to predict market moves. I would give credit if I could remember who said it.

Kalo
'tweren't me, but it's a well-worn Wall Street aphorism:

It doesn't matter whether you think the market will go up or down. What matters is what everybody else thinks. The problem is everybody else knows that too, so you need to figure out what everybody else thinks everybody else thinks.

PJW

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by White Coat Investor » Thu Jan 18, 2018 12:00 am

Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w
70%? Random chance says it is higher than that. Historically, a 10% correction happens just about every year. I think Joe Davis needs a financial history lesson.
According to investment firm Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year. Our last correction was nearly 1,000 days ago, the third-longest streak on record. For those curious, we went around 1,800 days without a correction in the mid-1990s. Long story short, corrections are an inevitable part of stock ownership, and there's nothing you can do as an individual investor to stop a correction from occurring.
https://www.fool.com/knowledge-center/6 ... -corr.aspx
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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woof755
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by woof755 » Thu Jan 18, 2018 1:54 am

Wasn't there a stock market correction in 2011?
Anyone regret staying the course?
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

bantam222
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by bantam222 » Thu Jan 18, 2018 2:28 am

10% crash would put us back to November valuations? Still up 20ish percent since trump took over? Not too worried

SlowMovingInvestor
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Re: 70% chance of correction according to Vanguard - Highest in 15 years

Post by SlowMovingInvestor » Thu Jan 18, 2018 3:51 am

mariezzz wrote:
Wed Jan 17, 2018 11:38 pm
Engineer250 wrote:
Wed Jan 17, 2018 8:20 pm


This is what I was thinking of. During the year Brexit happened and we had a mini couple of down days and everyone was asking if it was a buying opportunity, I think folks pointed out the market had actually been lower a few months before? But no one was talking about that as a buying opportunity.

I guess I am suffering from that price normalization thing. Even 20% down just puts us back to 2016 prices.
Same line of thought ... a 5 percent drop takes us back fewer than 3 weeks. So a 10 percent drop doesn't sound so bad. More like a buying opportunity.

OTOH, I do remember getting tired of buying opportunities back in 2001- 2002 :happy.

I think there are a number of momentum players in the market who jumped in (some fairly recently) and may start to shift away if there is a fall, and probably widen a correction. Of course, the stock market is not as grossly overvalued as it was in 2000 ...

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by hilink73 » Thu Jan 18, 2018 4:33 am

Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w
That's what crypto does in a day in both directions. Easily.
And with 100% certainty. :oops:


So, no panic!
Just rebalance and you are are fine.

:D

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Ichabob » Thu Jan 18, 2018 6:57 am

Kalo wrote:
Wed Jan 17, 2018 11:31 pm
I read a post by another Boglehead in another thread where he or she mentioned that it's not just knowing whether the market is overvalued, but you also have to know whether the market participants collectively think the market is overvalued. I thought that was a really good explanation of why it's so hard to predict market moves. I would give credit if I could remember who said it.

Kalo
FWIW, "participants" now means 90% HFT and AI and 10% human

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Rowan Oak
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Rowan Oak » Thu Jan 18, 2018 9:37 am

White Coat Investor wrote:
Thu Jan 18, 2018 12:00 am
Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w
70%? Random chance says it is higher than that. Historically, a 10% correction happens just about every year. I think Joe Davis needs a financial history lesson.
According to investment firm Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year. Our last correction was nearly 1,000 days ago, the third-longest streak on record. For those curious, we went around 1,800 days without a correction in the mid-1990s. Long story short, corrections are an inevitable part of stock ownership, and there's nothing you can do as an individual investor to stop a correction from occurring.
https://www.fool.com/knowledge-center/6 ... -corr.aspx
Now that I look again I see that the video was recorded 12/6/2017.

From 12/06/2017-1/17/2018 Total Stock Mkt Idx Adm is up 6%. The Vanguard crystal ball must be showing a 99.99% chance of a 2018 correction now.


$69.81 01/17/2018
$65.81 12/06/2017
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Cycle
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Cycle » Thu Jan 18, 2018 9:52 am

Duplicate
Last edited by Cycle on Thu Jan 18, 2018 9:58 am, edited 1 time in total.

SlowMovingInvestor
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by SlowMovingInvestor » Thu Jan 18, 2018 9:55 am

Ichabob wrote:
Thu Jan 18, 2018 6:57 am
Kalo wrote:
Wed Jan 17, 2018 11:31 pm
I read a post by another Boglehead in another thread where he or she mentioned that it's not just knowing whether the market is overvalued, but you also have to know whether the market participants collectively think the market is overvalued. I thought that was a really good explanation of why it's so hard to predict market moves. I would give credit if I could remember who said it.

Kalo
FWIW, "participants" now means 90% HFT and AI and 10% human
Side Comment: HFTs should not impact the long term, or even the mid term trajectory of the market, since they're only interested in trading in and out.

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Cycle
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Cycle » Thu Jan 18, 2018 9:57 am

Since our savings rate went up substantially last year, I've been hoping for a big sale but it never materializes despite all these correction predictions. It sure would be nice to have a drop with a slow recovery.

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Re: 70% chance of correction according to Vanguard - Highest in 15 years

Post by Engineer250 » Thu Jan 18, 2018 9:58 am

mariezzz wrote:
Wed Jan 17, 2018 11:38 pm
Engineer250 wrote:
Wed Jan 17, 2018 8:20 pm
iceport wrote:
Wed Jan 17, 2018 7:41 pm
OkieIndexer wrote:
Wed Jan 17, 2018 4:28 pm
Ah, but it's possible the 10% correction could start 20% higher than where we are now. :wink:
And if it were to happen tomorrow, a 10% correction in the US market would only take us back to the beginning of October 2017, a little over 3 months ago. Amazing, really.

Vanguard Total Stock Market Index Fund, 10/01/2017 to 01/17/2018
This is what I was thinking of. During the year Brexit happened and we had a mini couple of down days and everyone was asking if it was a buying opportunity, I think folks pointed out the market had actually been lower a few months before? But no one was talking about that as a buying opportunity.

I guess I am suffering from that price normalization thing. Even 20% down just puts us back to 2016 prices.
Same line of thought ... a 5 percent drop takes us back fewer than 3 weeks. So a 10 percent drop doesn't sound so bad. More like a buying opportunity.

Earlier in this thread, someone provided a link (to show market corrections) to a web page. Interesting that it begins "The positive economic evidence and key technical indicators continue to support the outlook for further bull market gains; however, that does not rule out the possibility of a 5-10% correction in the months ahead, notes money manager and market historian ..."
https://www.equities.com/news/historica ... orrections

That page was dated August 3, 2017 - almost 6 months ago. So far, no correction. So difficult: prediction.
But that's what I'm saying. 10% takes us back to what month's prices in 2017? And no one was calling that a buying opportunity when we were in that month. So it's going to take more than 10% for me to feel like it's a buying opportunity.
Where the tides of fortune take us, no man can know.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by lazydavid » Thu Jan 18, 2018 10:01 am

ruralavalon wrote:
Wed Jan 17, 2018 6:25 pm
My crystal ball said 73.54% chance of correction.
82% of statistics are made up on the spot; only 17% of people know that. :beer

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by V1RTUS » Thu Jan 18, 2018 10:26 am

I figure something is coming probably sooner than later. Don't think it will be a big deal in the grand scheme of things and don't plan to change my long-term approach but I did do a rebalance today. Went from 76/24 stock/bond mix back to my target of 70/30.
"I will do today what others won't, so that I can do tomorrow what others can't."

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Rowan Oak » Thu Jan 18, 2018 10:34 am

V1RTUS wrote:
Thu Jan 18, 2018 10:26 am
I figure something is coming probably sooner than later. Don't think it will be a big deal in the grand scheme of things and don't plan to change my long-term approach but I did do a rebalance today. Went from 76/24 stock/bond mix back to my target of 70/30.
Vanguard knows many investors have drifted above (some way above) their chosen stock allocation and this may be their way of telling you: "Rebalance Now if you're going to." I think in a bull market we get comfortable going above our chosen stock allocation and take on more risk. It seems to be just as hard to stick with the plan in a bull market as it is in a bear.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Da5id » Thu Jan 18, 2018 10:38 am

Rowan Oak wrote:
Thu Jan 18, 2018 10:34 am
V1RTUS wrote:
Thu Jan 18, 2018 10:26 am
I figure something is coming probably sooner than later. Don't think it will be a big deal in the grand scheme of things and don't plan to change my long-term approach but I did do a rebalance today. Went from 76/24 stock/bond mix back to my target of 70/30.
Vanguard knows many investors have drifted above (some way above) their chosen stock allocation and this may be their way of telling you: "Rebalance Now if you're going to." I think in a bull market we get comfortable going above our chosen stock allocation and take on more risk. It seems to be just as hard to stick with the plan in a bull market as it is in a bear.
It is also helpful to remind people that yes, corrections happen, and don't get so used to a steady increase in the stock indexes. Because that may cause bad behaviors when the correction does come. Whether or not the 70% is accurate it seems like good advice overall.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by V1RTUS » Thu Jan 18, 2018 10:44 am

Rowan Oak wrote:
Thu Jan 18, 2018 10:34 am
V1RTUS wrote:
Thu Jan 18, 2018 10:26 am
I figure something is coming probably sooner than later. Don't think it will be a big deal in the grand scheme of things and don't plan to change my long-term approach but I did do a rebalance today. Went from 76/24 stock/bond mix back to my target of 70/30.
Vanguard knows many investors have drifted above (some way above) their chosen stock allocation and this may be their way of telling you: "Rebalance Now if you're going to." I think in a bull market we get comfortable going above our chosen stock allocation and take on more risk. It seems to be just as hard to stick with the plan in a bull market as it is in a bear.
I actually find it harder in a bull market, which I guess is a good thing; better than the alternative at least.

I still have lots of time on my side so start getting excited when there are “sales.”
"I will do today what others won't, so that I can do tomorrow what others can't."

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Doom&Gloom » Thu Jan 18, 2018 11:04 am

lazydavid wrote:
Thu Jan 18, 2018 10:01 am
ruralavalon wrote:
Wed Jan 17, 2018 6:25 pm
My crystal ball said 73.54% chance of correction.
82% of statistics are made up on the spot; only 17% of people know that. :beer
But the more decimal places that are used, the more accurate and authoritative it seems to the typical reader. (Not BH readers, of course. Well, not 97.325% of them.)

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Crisium » Thu Jan 18, 2018 11:10 am

I'd consider 10% more noise than a correction.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Da5id » Thu Jan 18, 2018 11:15 am

Crisium wrote:
Thu Jan 18, 2018 11:10 am
I'd consider 10% more noise than a correction.
Well, fine, but the standard definition of correction is 10% or more so Vanguard's usage seems good to me. You are perhaps thinking of bear market?

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by ruralavalon » Thu Jan 18, 2018 11:27 am

Doom&Gloom wrote:
Thu Jan 18, 2018 11:04 am
lazydavid wrote:
Thu Jan 18, 2018 10:01 am
ruralavalon wrote:
Wed Jan 17, 2018 6:25 pm
My crystal ball said 73.54% chance of correction.
82% of statistics are made up on the spot; only 17% of people know that. :beer
But the more decimal places that are used, the more accurate and authoritative it seems to the typical reader. (Not BH readers, of course. Well, not 97.325% of them.)
Any projection using a decimal point is a joke. Of course most projections are a joke.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Crisium » Thu Jan 18, 2018 11:30 am

Da5id wrote:
Thu Jan 18, 2018 11:15 am
Crisium wrote:
Thu Jan 18, 2018 11:10 am
I'd consider 10% more noise than a correction.
Well, fine, but the standard definition of correction is 10% or more so Vanguard's usage seems good to me. You are perhaps thinking of bear market?
I believe context matters a lot more than a raw %, even though 10% is the minimum for a correction as you say.

10% decline from now is October 2017. 3 months in the past is noise to me. If the market continues at its breakneck pace, a 10% decline in a few months could be higher than today.

By contrast, the early 2016 decline took us back nearly 2 years.

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Vanguard into forecasting the market: a 70% chance of a significant correction in any year

Post by Always passive » Thu Jan 18, 2018 12:02 pm

[Merged this post into the existing topic - moderator prudent]

Interesting information, if nothing else because it comes from our dear Vanguard!
What do Bogleheads say?

"Chance of US stock market correction now at 70 percent: Vanguard Group
There is a 70 percent chance of a US stock market correction, according to research conducted by fund giant Vanguard Group.
Several forces are contributing to the much higher than typical risk, including narrowing of the bond yield curve and stretched U.S. equity valuations.
The trade-off between stocks and bonds, or even stocks and cash, doesn't look as strong as it did earlier in the bull market, following the financial crash."

"As part of its forecast that stocks will return no better than 4 percent to 6 percent in the coming years, Vanguard projected that developed markets stocks in the EAFE region will return more than U.S. stocks, at an estimated 5 percent to 7 percent, and emerging markets stocks possibly more, though with greater risk."

https://www.cnbc.com/2017/11/27/chance- ... guard.html

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by tesuzuki2002 » Thu Jan 18, 2018 2:54 pm

:oops: :oops: :oops: :oops: :oops:
Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w

MathWizard
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by MathWizard » Thu Jan 18, 2018 3:13 pm

10% for a market correction. With a P/E ratio of 26, and a CAPE ratio of almost 34, I'd say we are
closer to a 33% correction, perhaps up to 50% correction.

I've only seen a higher CAPE at the end of the Internet bubble of the late 1990's.

Stocks are not even throwing off dividends like they used to, so that doesn't cushion the blow of a
drop in price very much.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by ray.james » Thu Jan 18, 2018 3:24 pm

MathWizard wrote:
Thu Jan 18, 2018 3:13 pm
10% for a market correction. With a P/E ratio of 26, and a CAPE ratio of almost 34, I'd say we are
closer to a 33% correction, perhaps up to 50% correction.

I've only seen a higher CAPE at the end of the Internet bubble of the late 1990's.

Stocks are not even throwing off dividends like they used to, so that doesn't cushion the blow of a
drop in price very much.
I agree with with general idea but the PE need to be adjusted for tax reform EPS boost(10%-15%?) and share buybacks last 5 years.

I personally feel the bubble is still midway.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by tesuzuki2002 » Thu Jan 18, 2018 5:07 pm

Tamales wrote:
Wed Jan 17, 2018 11:24 pm
There hasn't been a drop of >9% in the SP500 from the most recent high since 2/11/16 (which ended a 13.3% drop from 11/3/15, and that in turn ended a 12.97% rise from 8/25/15).

There have been a couple drops since 2/11/16 (such as the ones that ended 6/27/16, 11/4/16, 4/3/17) but none that was more than 9% from the most recent high so using the 9% trend reversal trigger, the trend is still in place.

I pulled this data quickly so I don't guarantee it's 100% correct, but here are the periods since 1950 of at least 2 continuous years when there were no drops of >9% from the previous trend break:

7-17-50 thru 9-14-53 (3yr 2mo)
10-22-57 thru 10-25-60 (3yr)
10-23-62 thru 6-28-65 (2yr 8 mo)
7-24-84 thru 9-29-86 (2yr 2mo)
12-4-87 thru 1-30-90 (2yr 1mo)
10-11-90 thru 4-11-97 (6yr 6mo)
3-11-03 thru 8-15-07 (4yr 5mo)
6-1-12 thru 8-25-15 (3yr 2mo)
2/11/16 thru ?? (1yr 11mo and counting)

So (assuming the current one lasts at least thru 2/11/18) there have been 9 such periods of >2 years in the past 67 years. So not common, but not exactly rare either.
If you think you see a clear pattern in there, roll the dice. Otherwise, just ride it out.

Those who predicted the crash of '08... also have predicted DOW 36K so you tell me...

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by MikeMak27 » Thu Jan 18, 2018 5:18 pm

I just sold some emerging markets today to buy REITS. Emerging markets have had an outrageously good start to the year with REITS having a terrible 5 weeks since mid December.
Mac 4 fund portfolio: 45% US small cap value (IJS, VBR), 40% Emerging Markets (IEMG, VWO, FPMAX), 10% long term US treasuries (TLT), 5% US REITS (VNQ)

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Rowan Oak
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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Rowan Oak » Fri Feb 09, 2018 2:46 pm

Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w
Joe was pretty much spot on. Although, now hindsight bias has us all thinking we knew it was coming.

Vanguard Group’s chief economist Joseph Davis, who in November of 2017, said there was “a 70% chance of a US stock market correction, a 30% increase over what has been the norm for the past 60 years.”
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by garlandwhizzer » Fri Feb 09, 2018 9:25 pm

I remember a some Forum posts that mocked Joe Davis's prediction when it came out but that 70% call looks good in retrospect now. Also both Vanguard and Schwab have been cautioning investors for some time that in 2018 volatility was very likely to increase although the VIX had been hanging at historic lows for a very long time. That also turned out to be correct. Financial advice and market insight varies a lot in quality and none of it is fool proof. These 2 firms, however, in my experience have usually usually offered sound and reasoned market analysis worth reading in contrast to much of the financial media which is often more concerned with selling their costly products than dispensing true insight. Now V and S are cautioning investors not to market time this correction, either by panic selling to avoid a perceived severe bear market in the near-term future or by buying into the correction to purchase shares at lower prices. Simply put, we don't know whether the market next week will go up or down and if so by how much. If you're comfortable with your stock/bond allocation stay put--this IMO is good advice again.

Garland Whizzer

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by willthrill81 » Fri Feb 09, 2018 9:37 pm

Rowan Oak wrote:
Fri Feb 09, 2018 2:46 pm
Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w
Joe was pretty much spot on. Although, now hindsight bias has us all thinking we knew it was coming.

Vanguard Group’s chief economist Joseph Davis, who in November of 2017, said there was “a 70% chance of a US stock market correction, a 30% increase over what has been the norm for the past 60 years.”
Keep in mind that the maximum drawdown of U.S. stocks in an average year has been 14%; a correction is a mere 10% drop.

Further, a correction occurring does not mean that stocks will not end the year up overall; history shows that that is the usual outcome.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by alex_686 » Fri Feb 09, 2018 9:41 pm

Phineas J. Whoopee wrote:
Wed Jan 17, 2018 10:09 pm
Does volatility only mean going down quickly, but not going up quickly?
PJW
Volatility is up and down, semi-variance is just down. Nobody cares about upwards volatility - after all who cares about ruining a party? That being said, downward volatility has a big fat fail that upwards volatility does not have. The stock market climbs up steps and falls out of windows. We have had a few 10%+ down days, when was the last time we had a 10% up day?

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by willthrill81 » Fri Feb 09, 2018 9:47 pm

alex_686 wrote:
Fri Feb 09, 2018 9:41 pm
Phineas J. Whoopee wrote:
Wed Jan 17, 2018 10:09 pm
Does volatility only mean going down quickly, but not going up quickly?
PJW
Volatility is up and down, semi-variance is just down. Nobody cares about upwards volatility - after all who cares about ruining a party? That being said, downward volatility has a big fat fail that upwards volatility does not have. The stock market climbs up steps and falls out of windows. We have had a few 10%+ down days, when was the last time we had a 10% up day?
There have been seven days when the DOW was up more than 10% in a single day and four days when the DOW fell by more than 10% in a single day.
https://en.wikipedia.org/wiki/List_of_l ... al_Average

The last day that the DOW gained more than 10% in a day was 10/28/2008 (+10.88%).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Rowan Oak » Fri Feb 09, 2018 9:59 pm

Tim Buckley today gave his advice in this video. Listen to the last thing he says at the end.

https://youtu.be/5auDFQzj3zY
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by david1082b » Fri Feb 09, 2018 10:00 pm

garlandwhizzer wrote:
Fri Feb 09, 2018 9:25 pm
I remember a some Forum posts that mocked Joe Davis's prediction when it came out but that 70% call looks good in retrospect now. Also both Vanguard and Schwab have been cautioning investors for some time that in 2018 volatility was very likely to increase although the VIX had been hanging at historic lows for a very long time. That also turned out to be correct. Financial advice and market insight varies a lot in quality and none of it is fool proof. These 2 firms, however, in my experience have usually usually offered sound and reasoned market analysis worth reading in contrast to much of the financial media which is often more concerned with selling their costly products than dispensing true insight. Now V and S are cautioning investors not to market time this correction, either by panic selling to avoid a perceived severe bear market in the near-term future or by buying into the correction to purchase shares at lower prices. Simply put, we don't know whether the market next week will go up or down and if so by how much. If you're comfortable with your stock/bond allocation stay put--this IMO is good advice again.

Garland Whizzer
Corrections have happened almost every year historically, it's not exactly rocket science to predict one. I would mock the idea of giving a % chance, since corrections are guaranteed pretty much. The chance of stocks doing what they do almost every year is not 70% or whichever stat you want to pick.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by alex_686 » Fri Feb 09, 2018 10:00 pm

willthrill81 wrote:
Fri Feb 09, 2018 9:47 pm
There have been seven days when the DOW was up more than 10% in a single day and four days when the DOW fell by more than 10% in a single day.
https://en.wikipedia.org/wiki/List_of_l ... al_Average

The last day that the DOW gained more than 10% in a day was 10/28/2008 (+10.88%).
o.k., sort of. You are quoting the DOW which is not the greatest index, my remark was off the cuff and slightly off the mark. Do you want me to dig up the ugly statistical facts on this?

https://www.r-bloggers.com/a-slice-of-s ... s-history/

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by willthrill81 » Fri Feb 09, 2018 10:03 pm

alex_686 wrote:
Fri Feb 09, 2018 10:00 pm
willthrill81 wrote:
Fri Feb 09, 2018 9:47 pm
There have been seven days when the DOW was up more than 10% in a single day and four days when the DOW fell by more than 10% in a single day.
https://en.wikipedia.org/wiki/List_of_l ... al_Average

The last day that the DOW gained more than 10% in a day was 10/28/2008 (+10.88%).
o.k., sort of. You are quoting the DOW which is not the greatest index, my remark was off the cuff and slightly off the mark. Do you want me to dig up the ugly statistical facts on this?

https://www.r-bloggers.com/a-slice-of-s ... s-history/
For the S&P 500, there have been two days with gains over 10% and only one with a loss over 10%.
https://en.wikipedia.org/wiki/List_of_l ... _500_Index
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by Tamales » Fri Feb 09, 2018 11:48 pm

willthrill81 wrote:
Fri Feb 09, 2018 9:37 pm

Keep in mind that the maximum drawdown of U.S. stocks in an average year has been 14%; a correction is a mere 10% drop.

Further, a correction occurring does not mean that stocks will not end the year up overall; history shows that that is the usual outcome.
Will, the stat about the maximum drawdown being 14% in an average year seems hard to believe. Do you recall where you read that and whether they "showed their work?" Of course it's possible the author cherry-picked what US stocks means and how annual maximum drawdown was determined and what period it was averaged over, and maybe even how they define "average year" to get a striking number. So there might be a way to arrive at it, and I just wonder what lengths the author went to in arriving at it. It just sounds pretty hard to believe given there have been multiple multi-year periods of no drop greater 9% (data I posted earlier in this thread based on my own spreadsheet).

Not sure about the 2nd statement either. I'd be interested in a source for that as well, if you have it. This one doesn't have as much wiggle room in the variables and assumptions as the first one, but it still has some. I'm not saying I know it's wrong, I just like to understand how strained the assumptions had to be to arrive at it.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by willthrill81 » Sat Feb 10, 2018 1:02 am

Tamales wrote:
Fri Feb 09, 2018 11:48 pm
willthrill81 wrote:
Fri Feb 09, 2018 9:37 pm

Keep in mind that the maximum drawdown of U.S. stocks in an average year has been 14%; a correction is a mere 10% drop.

Further, a correction occurring does not mean that stocks will not end the year up overall; history shows that that is the usual outcome.
Will, the stat about the maximum drawdown being 14% in an average year seems hard to believe. Do you recall where you read that and whether they "showed their work?" Of course it's possible the author cherry-picked what US stocks means and how annual maximum drawdown was determined and what period it was averaged over, and maybe even how they define "average year" to get a striking number. So there might be a way to arrive at it, and I just wonder what lengths the author went to in arriving at it. It just sounds pretty hard to believe given there have been multiple multi-year periods of no drop greater 9% (data I posted earlier in this thread based on my own spreadsheet).

Not sure about the 2nd statement either. I'd be interested in a source for that as well, if you have it. This one doesn't have as much wiggle room in the variables and assumptions as the first one, but it still has some. I'm not saying I know it's wrong, I just like to understand how strained the assumptions had to be to arrive at it.
I've seen it in multiple places. It seems to be in reference to the S&P 500 since 1980.
Despite average intra-year drops of 14.2%, annual returns have been positive in 27 of 35 years.
http://windgatewealthmanagement.com/the ... l-returns/

http://www.calamos.com/Volatility-Oppor ... are_common

http://news.morningstar.com/all/market- ... -card.aspx

https://intelligent.schwab.com/public/i ... ommon.html

Having just examined the month-to-month* maximum drawdowns shown in Portfolio Visualizer for the total stock market in every year since 1972, I'd say that the 14% number, as a mean of all maximum drawdowns, is probably accurate. The median maximum drawdown, a more accurate measure of what is typical, is obviously significantly lower, probably around 7%. Still, 10% market corrections have been more common in the historic record than many think.

*Note that the daily maximum drawdown is obviously greater than the monthly maximum drawdown. For instance, if stocks were to recover by the end of this month, then Portfolio Visualizer would not register any drawdown so far at all for 2018. I suspect that the sources above used the daily maximum drawdowns, which is more accurate.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by garlandwhizzer » Sat Feb 10, 2018 12:11 pm

David1082b wrote:
Corrections have happened almost every year historically,
Corrections defined as a 10% drop in stock prices have historically occurred according to Vanguard in 40% of calendar years. There was no correction for example in 2017 when equity volatility was remarkably low and returns quite high. This fact attracted a lot of new investor dollars. I believe Vanguard made this call as part of the forecast for 2018 in order to prepare newer investors for the probability that the road might not be as smooth as it was in 2017 and to reassure them that it's a normal thing in markets.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by RRAAYY3 » Sat Feb 10, 2018 12:34 pm

Things are good

Media pounding us with new highs ... people on the sidelines finally join the party, inflate valuations, robots freak out, those late arrivers follow suit, ... I buy more. Yawn.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by BogleAlltheWay » Sat Feb 10, 2018 12:44 pm

Although 70% is a high number, it makes sense when you take into account that there is a 40% chance of a correction In any year and the current enviorment. As he mentioned stocks are highly value and interest rates are low.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by 2015 » Sat Feb 10, 2018 10:40 pm

ruralavalon wrote:
Wed Jan 17, 2018 6:25 pm
Rowan Oak wrote:
Wed Jan 17, 2018 4:18 pm
In a video released today Joe Davis of Vanguard says the chance of a correction this year (at least a 10% decline) is 70% "the highest in 15 years" he's been at Vanguard.

Sometimes it seems they do all but say, "rebalance NOW to your chosen stock allocation!".

Joe goes on to explain why trying to time the market is a losers game.

https://youtu.be/s1QLArYMI4w
knpstr wrote:
Wed Jan 17, 2018 4:37 pm
Weird, I calculated a 63.33 (repeating) % chance of a correction.
My crystal ball said 73.54% chance of correction.
Strange, my chicken bones showed 71.034654%. Better consult my dart throwing monkeys.

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by garlandwhizzer » Tue Apr 10, 2018 12:13 pm

Looks like Joe Davis sized it up properly back when the market was constantly going up without volatility. IMO Vanguard as a firm is conservative and hesitant to make predictions unless they are well founded. When they do venture into the uncertain realm of market predictions, they're usually worth paying attention to.

Garland Whizzer

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by whodidntante » Tue Apr 10, 2018 12:47 pm

Da5id wrote:
Thu Jan 18, 2018 11:15 am
Crisium wrote:
Thu Jan 18, 2018 11:10 am
I'd consider 10% more noise than a correction.
Well, fine, but the standard definition of correction is 10% or more so Vanguard's usage seems good to me. You are perhaps thinking of bear market?
10% is a correction or a bunny
20% is a bear
50% is a catastrophe
90% is when I start my own sheepdog thread

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Re: 70% chance of correction in 2018 according to Vanguard - Highest in 15 years

Post by ReformedSpender » Tue Apr 10, 2018 1:21 pm

Tamales wrote:
Wed Jan 17, 2018 11:24 pm

7-17-50 thru 9-14-53 (3yr 2mo)
10-22-57 thru 10-25-60 (3yr)
10-23-62 thru 6-28-65 (2yr 8 mo)
7-24-84 thru 9-29-86 (2yr 2mo)
12-4-87 thru 1-30-90 (2yr 1mo)
10-11-90 thru 4-11-97 (6yr 6mo)
3-11-03 thru 8-15-07 (4yr 5mo)
6-1-12 thru 8-25-15 (3yr 2mo)
2/11/16 thru ?? (1yr 11mo and counting)

I suppose we can officially but an end time stamp on the last line item

:beer
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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