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Markets are struggling, but history shows there is hope on the horizon

Markets are struggling, but history shows there is hope on the horizon


Stocks closed Thursday as Wall Street said goodbye to a dismal second quarter and first half.

The three main indices ended the month and the quarter in the red.

The S&P 500 had its worst half since 1970, the Dow had its biggest first-half decline since 1962 and the Nasdaq had its biggest percentage drop ever. This is the second consecutive quarter of decline for the three indices.

This year, markets have been rocked by a number of hostile headwinds: Russia’s war in Ukraine, China’s Covid-19 shutdowns, soaring inflation and aggressive rate hikes by the Federal Reserve. . All of these factors fueled investor fears of a recession, prompting a rush to exit.

The S&P 500 has lost $8.2 trillion in total since the start of the year and had its worst June since 2008 and its worst quarter since 1970, with all 11 sectors in the red, according to analyst Howard Silverblatt. principal of indices at S&P Dow Jones Indices.

In short, things look disastrous. But that doesn’t mean they will stay that way.

Correlation and causation

The good news is that after a bad performance, the market always goes up…eventually.

There is also very little correlation between the performance of the S&P 500 in the first and second half, at least historically. The S&P 500 lost 21% in the first six months of 1970, but rebounded to gain 27% in the second half, according to data from the S&P Dow Jones indices.

The bad news is that when the markets drop this significantly, the next quarter isn’t always great. In the last three worst starts of the year, with declines of 5% or more, the S&P 500 fell in the third quarter by another 6.8%, 2.2% and 2.1% respectively, Sam said. Stovall, chief investment strategist at CFRA Research.

beat the bear

But timing matters, Stovall added. It took just 161 calendar days for the market to move from its January 3 peak to the current bear market. This is much faster than the typical average turnaround time of 245 days.

And a fast bear is usually not as big and scary as a slow, towering bear. Historically, markets that took less than 245 days to peak to trough, as measured by a 20% decline threshold, had losses of less than 27%. Those who take longer to fall show losses of 33%.

US stocks generally do well after entering bear markets, at least in the long term. Stocks have risen on average nearly 15% a year after hitting bearish territory, with an even better median gain of 23.8%, according to data from Ryan Detrick, chief market strategist for LPL Financial.

It’s not uncommon for stocks to recover quickly from bear market lows, Detrick said. The average bear market takes about 19 months to recoup all of its losses, but when the S&P 500 falls less than 25%, recoveries only take an average of seven months. Recently, the rebound has been even faster: the last three bear markets have taken only four to five months to recoup losses.

feel presidential

Presidential cycles also have a historic impact on markets, Stovall said. And that’s good news for investors today.

According to CFRA analysis from 1944 to present, the average return of the S&P 500 in the second and third quarters of a president’s second year in office is negative, but markets rebound in the fourth quarter, with an average increase by 6.4%.

A president’s third year in office is by far the best performer, on average, with S&P 500 growth jumping about 16%.

So to a very green year 2023!




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