Back in early November we ran a story titled “from one outlier to another”. The market had declined and recovered from a very deep trough so rapidly that we experienced two incredible outlier events in less than a year – an almost unheard of occurrence of such magnitude. This excellent chart summarized the extreme nature of the event:
In the midst of our research we ran across an equally interesting chart from Goldman Sachs. While the market may now be at an extreme and in the process of undergoing a remarkably rare event there is nothing that says this incredibly rare event can’t become even more rare. In other words, this phenomenal bull market just might get even more phenomenal.
If you study the previous 18 deepest bear markets and pattern their recovery you’ll confirm what the chart above shows. We are in an almost unheard of top percentile in terms of performance. If you chart these 18 deepest bears and the subsequent recoveries you get the following:
What’s interesting to note here is that we are perfectly tracking the sharpest of rebounds. While Goldman views this as a bullish signal going forward it’s also important to note that the majority of these deep bear markets sputtered out from these levels (a thesis I believe is much more likely).
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.