Despite rebounding gaining 0.5% on January 25, the S&P; 500 is still down 4.6% from its January 19 cyclical high of 1150. At this juncture, it is important to keep in mind that equity pullbacks are part of every economic recovery. As the table below shows, the amplitude of the average pullback twelve months after the end of a recession is13%, or
8.8% if we exclude 2001. The reason we do not view the 2001 episode (-33.8%) as a probable scenario this time around is back then, the S&P; 500 was trading at 21 times forward earnings. This is well above the current valuations of around 14 times. As such, we would not expect to see a larger-than-average recovery pullback in the coming months. The improving economic backdrop remains supportive of equities.