Tuesday, 25 August 2015 20:31

What normally happens after the market drops 5% in a week?

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Last week's sell off in share markets, prompts many investors to ask ..... what next?

History has a habit of repeating itself so it is with this in mind that we sourced a table from Bloomberg recently that shows the market movements following a 5% weekly fall.

It's interesting that 7 out of ten times, the market has been higher, 3 months after a weekly fall of 5%.

The occasions when the market was not higher 3 months after a sharp weekly fall, was during times of a systemic market problem (such as Lehmann Brothers bankruptcy in 2008).  So investors need to ask themselves whether or not current events are likely to result in systemic failure in the financial system.  If not, then history suggests that in the majority of occasions, markets will be higher in 3 months.

The table below refers to the US share market.

 

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