ETF Trends
ETF Trends

Stock exchange traded funds have pulled back a bit following the sharp rally from the low in early October. Investors are wondering how much bounce is left in equity ETFs for the rest of 2011.

After the late-summer sell-off, the S&P 500 bottomed out on Oct. 3 with a 19.4% decline from the top, “just missing the 20% decline threshold that traditionally signals a new bear market,” Sam Stovall, Chief Equity Strategist for S&P, wrote in a note.

According to a Standard & Poor’s report, market volatility peaked on Oct. 10 and is falling, which may signal a sustained advance in the S&P 500. [S&P 500 ETFs’ Rally Over 200-Day Average Opens Door to Year-End Rally]

“Recent equity price performances indicate that the worst may actually be over,” Sam Stovall, Chief Equity Strategist for S&P, wrote in a note. “Should this indeed be the case, history says that a favorable period awaits for equities as three, six and 12-month price gains following baby bear markets and near-misses since 1945 averaged 13%, 23% and 32%, respectively.”

Since World War II, the S&P 500 has taken an average of four months, or a median of two, to recuperate losses after a severe corrections – price declines of 15% to 20% – in the  eight previous large declines. A 24% gain from the closing low would represent a full recovery from the correction. [Risk-On, Risk-Off Trades Drive S&P 500 ETFs]

Furthermore, sectors with the worst performance during the large declines were most often the ones posting the largest gains in the following months. Cyclical sectors have also outperformed defensive stocks in a market recovery.

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