The worst bout of selling in S&P history

Key points:

• Over the past 7 sessions, more than 90% of S&P 500 stocks declined 5 times, the most ever
• Other metrics show a historic level of failed trends within the index
• Typically, this has preceded multi-week rebounds and positive long-term returns

The worst bout of selling pressure...ever

This has been the worst stretch of selling in the history of the S&P 500. And even before.

The S&P index went to 500 stocks in 1957 and included fewer stocks in the decades prior. In re-creating history, there has never been a rougher 7-day stretch than what the index has suffered leading into Friday's session.

In the past seven sessions, more than 90% of stocks in the index have declined on five days. 

Since 1928, that has never happened before.

There have been a handful of times when there was a majority of days with more than 90% declining stocks, clustered in the 1930s and post-financial crisis eras. Forward returns were very volatile after these signals, but all preceded a higher price in the S&P 500 6 or 12 months later.

As a result of the persistent and overwhelming selling, there are remarkable extremes in the breadth of trends within the S&P 500. Over the past five days, fewer than 1.6% of stocks in the index have held above their 10-day moving averages. That has been matched only twice before in recent decades.

Both endured extremely volatile and choppy conditions for months before experiencing excellent long-term gains.

Medium-term trends have also suffered, with fewer than 2% of stocks holding above their 50-day averages. That has happened a handful of times, leading to rebounds over the next 2-4 weeks and longer-term.

The push lower on Wednesday made investors in many stocks finally capitulate, so more than 43% of stocks in the S&P fell to 52-week lows on the same day. In recent decades, that has been exceeded only by October/November 2008, December 2018, and March 2020.

What the research tells us...

Well, pretty much the same as it has been all week. We are in a bear market, everything is horrible, and there is no sustained interest among buyers. Every bullish setup gets met immediately with a slap upside the head. About the only potential silver lining is just how bad things have become. The level of selling pressure we've seen this week has been rarely - if ever - matched in many decades. One-sided behavior like this has a strong history of being contrarian...but that was also the case in May, and here we are at lower lows. So for new buyers, it seems like patience is a better virtue, and for existing holders, it seems as though it's too late to sell.