“Markets in Turmoil” – The Upside of Downside

Fear is in the air again. Over the past few weeks, the S&P 500, Dow, and Russell 2000 have given back all of their gains on the year.

Russell 200, S&P 500 and Dow 2018 Price returns

Note: Index price returns, does not include dividends.

Meanwhile, international indices have fared much worse, with the average country ETF down 14% year-to-date.

2018 Total returns of country ETFs

Note: Total return, in U.S. Dollars, as of 10/24/18. Data Source for all tables herein: YCharts.

The list of countries hitting 52-week lows is a mile long…

52 week low country ETFs in 2018

And a number of key sectors are hitting their lowest levels in over a year…

Industry ETFs chart of 52 week low in October 2018

If the month ended today, it would be the worst for the S&P 500 since February 2009…

Longest streak in history of S&P 500 total retuns

Unsurprisingly, financial media has taken notice. For the second time in two weeks, CNBC has aired an after-hours special report…

Historically, such reports have have served as a bullish contrarian indicator, with above-average S&P forward returns and gains 100% of the time looking out over the next 3-12 months.

S&P 500 forward total returns following CNBC

Now, before you get too excited, there’s an important caveat that must be noted.

The data set of “Markets in Turmoil” reports starts in 2010, and is therefore is limited to a bull market run where corrections have been short-lived. When next real bear market hits, there will surely be losses following these specials.

That said, as a short-term sentiment gauge, it’s been a pretty good one. And as a trader playing a bounce, I would much rather see a “markets in turmoil” special than regular programming.

For longer-term investors, the upside of downside is clear: it’s an opportunity to add money or reinvest dividends at lower prices/valuations and higher prospective returns. All long-term investors still in the a adding/reinvesting phase should be rooting for a bear market today, and many more “markets in turmoil” specials in the years to come. Bring it on.




Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Charlie is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He has been named by Business Insider and MarketWatch as one of the top people to follow on Twitter and his work has been featured in Barron’s, Bloomberg, and the Wall Street Journal.

You can follow Charlie on twitter here.


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