Despite Monday's 0.5% rebound, the S&P 500 is still down 4.6% from
its January 19 cyclical high of 1,150.
Investors need to remember that
equity pullbacks are part of every economic recovery. In fact, the
average pullback 12 months after the end of a recession is 13%, or 8.8%
if 2001 is excluded, according to National Bank Financial.
The 33.8% decline in 2001 is an unlikely scenario this time around
because the S&P 500 was trading at 21 times forward earnings,
according to economist Stéfane Marion. He noted that this is well above current valuations around 14 times.
"As such, we would not expect to see a
larger-than-average recovery pullback in the coming months," the economist told clients. "The
improving economic backdrop remains supportive of equities."