BULLS AND BEARS ON THE STOCK MARKETS

Saul Williams of Motley Fool has a very nice article on Bull and Bear markets.*  A few excerpts are below.  He also present two figures from Yardeni Research that show the details of the figure reproduced below that show the details. I recommend you read the full article.  How long the current downturn occurs and how deep it ends up going remains to be seen, of course.  The beginning of it is unique.

...between 1965 and the end of 2015 the S&P 500 underwent 27 corrections of 10% or more (numbers were rounded to the nearest integer). 
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...we spend more time in rising markets than we do during periods of correction. This is more of an extension of the prior point that corrections, while not uncommon, tend to happen quickly and be over with. Only with rare exception (the 2000-2002 correction, which lasted 915 days, and the 2007-2009 correction, which went on for 510 days) do corrections last a prolonged period of time.

But here's the most important thing to note: The S&P 500 reclaimed the lost value in every single instance involving a correction of 10% or more. That's 27 corrections of at least 10% (again, rounded up) since 1987, and every single one of those corrections wiped out by a bullish rally at some point. Sometimes it takes just weeks to wipe out the effects of a correction, or as you can see with the dot-com bubble of 2000, it took a good seven years for long-term investors to be vindicated once more.

(Click on figure to enlarge)

* http://www.fool.com/retirement/general/2016/01/18/the-only-chart-that-matters-during-a-stock-market.aspx

1987 STOCK MARKET CRASH (22% IN ONE DAY!)

I was investing on October 19, 1987 when the market crashed 22.68% on what has become known as Black Monday after a Friday drop of  4.6% on record volume*  from a much lower level than today.   At that time, trades were still done by hand and  I couldn't even get my broker on the phone.  By year end, both the DJIA and the S&P 500 ended up about 3%, not a lot but certainly not as bad as it looked at one time.  Thus I was nervous last Friday when the D{JIA dropped more than 500 pts in a day,because of the bounce back in 1987, I wouldn't despair yet.  Remember also that the stock market has risen in each year of President Obama's terms and that the year before a presidential election (as this one is) is often the best year of the presidential stock market cycle. 

While, the P/E of the DJIA at the close of business on Monday is within the "normal" range (15.19), the S&P 500 is still high, though the dividend is much higher than a year ago (2.71% Monday vs 2.23% a year ago).  The P/E of the S&P 500, however, is still in the "bubble" range (21.63) although there too, the dividend is much higher than a year ago (206% vs 1.90).**

Both the DOW Utility and DOW Transportation indices are still somewhat high (16.30 and 17.10) though the dividends of both are much higher than a year ago ( 3.65% vs 2.71% and 1.49% vs 1.09% respectively).**

I don't know what is normal for the Russell 2000, but the P/E is actually higher than a year ago (89.22 vs 78.97) although the dividend is much higher today (1.48% vs 1.29%). Although I also don't know what is normal for the NASDAQ 100, the P/E still looks in the "bubble" range though a tad smaller than year ago (22.35 vs 23.06 a year ago).  In this case, however, the dividend is also somewhat smaller  (1.21% vs 1.28%).**

While the U.S. economy has only 13+% of its GDP dependent on exports, a stronger dollar would hurt our economy only a little bit.  A stronger dollar, however, would hurt the country more; however, the dollar index has gone the other way (for now) at 93.33 on Monday, down from 96.81 a week ago.

Our exports grew by 27% from 2009 through 2013, adjusted for inflation. China, it should be remembered China is only number 3 of our export countries, Mexico and Canada each being larger.  See predominant export and import by state:***

Predominant Export by state:

 Predominant Import by State:

* https://en.wikipedia.org/wiki/Black_Monday_(1987)
** http://online.wsj.com/mdc/public/page/2_3021-peyield.html
*** http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS;
http://trade.gov/neinext/role-of-exports-in-us-economy.pdf;
http://www.ibtimes.com/us-economy-2015-check-out-top-imports-exports-every-us-state-1910766