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Can We Make It Eight?

Tyler Durden's Photo
by Tyler Durden
Tuesday, May 24, 2022 - 10:55 AM

The sheer relentlessness of the equity market sell-off continued apace last week with the Dow capping off its first run of 8 successive weekly declines since 1923. Meanwhile, the S&P 500 saw its first run of 7 successive weekly declines (tumbling 15.1% over this period) since the dotcom bust aftermath in 2001.

As DB's Jim Reid notes in his Chart of the Day on Monday, there have only been three previous declines of 7 or more successive weeks. We had a 7-week losing stretch ending in March 1980 (total -15.8%) and two 8-week stretches ending in March 2001 (-16.9%) and May 1970 (-21.5%). We have never had a 9-week stretch of losses: will Biden take the the first ever credit for that? In any case, we are around record-breaking territory.

A reminder from this weekend, this is the 6th largest non-recession (so far) correction in post WWII history. Including recessions, there are fifteen larger post WWII selloffs with the median recession sell-off at -23.9%.

From here, DB's equity strategist Binky Chadha expects stocks to move towards the average recession decline in the near term, which would put the S&P 500 at 3650 (down from the current 3977). The bank's base case is then that a recession doesn't materialize this year and the S&P closes 2022 at c.4750, however it then reverses all gains in 2023 when the recession does hit (as a reminder, DB is the only bank on Wall Street to officially forecast a recession next year). Which is why, as Reid concludes, "regardless of whether it reaches that level in 2022, if the recession then comes in 2023, as we expect, then get ready for large declines again!"

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