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S&P's Stovall says possible negative year for stocks

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Standard and Poor's/Capital IQ strategist Sam Stovall says the market could be heading for a true correction, and if so, it may take until some time in 2016 to get back to break even.

The S&P 500, as of Friday was down 7.7 percent from its May high, and it lost 5.8 percent just last week alone.

"Should the S&P slip into a long overdue correction mode, it will likely take longer than year end to get back to break even," said Stovall. In 2011, the S&P was just very slightly lower, down much less than 1 percent. Before that it was last lower in 2008. As of now, it is down 4.3 percent for the year.

"A five to 10 percent decline takes one month to materialize on average and two months to get back to break even. So, if we turn around before dropping 10 percent or more, we have a chance of being positive for this year, but because we've gone 47 months without a decline of 10 percent or more versus the average of 18 months since World War II, I think there's a good likelihood this becomes a correction, and if that's the case it ends up taking four months to get back to break even," he said.

Stovall said the market could see a near term pop after last week's big drop, and he does not see a bear market coming. The S&P 500 Friday was down 64 points at 1970.

"As a result of last week's near 6 percent drop, history says we should expect a pop next week. During this bull market, whenever the S&P 500 fell by 4 percent or more, the market gained an average 2.3 percent in the following week, and registered a price advance 80 percent of the time. What's more, since 1945, the 500 gained an average 1.6 percent in the week after a 4 percent plus decline and rose 66 percent of the time," Stovall noted.

U.S. equities were slammed hard Friday, after weakness in world markets, particularly in the emerging market currencies. China's weak manufacturing data Friday added to the selling spiral, and Shanghai stocks were down more than 4 percent. Commodities were also slammed as the oil complex was sharply lower, with West Texas Intermediate crude futures falling through $40 per barrel. The Dow ended Friday down 530 points at 16,459.