Get Ready for Market Storm Angel

December 16th Weekly Market Update

Winter Storm Dion shut down airports, schools, and businesses in parts of the United States last week in the midst of the holiday shopping season, but it is unlikely to have had a measureable economic impact or to cause a storm in the markets.

Yes, winter storms have names. For several hundred years names have been assigned to hurricanes and tropical storms; the World Meteorological Organization is in charge of assigning names to those events. But just a year ago, starting with the 2012 – 13 winter storm season, The Weather Channel announced it would start naming winter storms in an effort to raise awareness and preparation.

If this indeed works, then it may be a great idea to apply to the stock market. Perhaps we should name the stock market declines, or market storms, as they unfold during the year in order to raise investor awareness and preparation. An average year holds four market storms that have a magnitude of greater than a 5% decline with at least one major storm that has a peak-to-trough decline of 15.8% in the S&P 500 over the past 20 years. Even when excluding recession years, the average annual peak-to-trough stock market decline is still over 10%, the magnitude that defines a major storm.

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