What a ride 2020 has been for investors. The fastest bear market ever, now one of the steepest recoveries ever. After being down more than 30% for the year on March 23, this recovery is extremely impressive. In fact, before yesterday, over the previous 13 days the S&P 500 had gained nearly 25%, for the best 13-day bounce since July 1938.
This brings the question, could stocks actually close the year positive? “Yes, we have seen a historic reversal from the lows a few weeks ago and many are now wondering if stocks could actually turn positive before 2020 is over,” said LPL Financial Senior Market Strategist Ryan Detrick. “Although anything is possible, history isn’t on the bull side here, as this would be the most any year has ever been down to actually reverse and close in the green.”
As shown in the LPL Chart of the Day, the most any one year has ever been down and closed higher was in 2009 when the S&P was down 25% year to date in March and managed to close higher by more than 23%. Of course, remember that reversal took place after one of the worst bear markets in history.
With the dual benefit of historic monetary and fiscal policy, we do remain optimistic that should the COVID-19 pandemic be contained over the coming months, the amount of stimulus in the system could support stock prices, potentially to much higher than current levels.
As we discussed last week, big down years for stocks are rare. Here is an excerpt from Big Annual Declines Are Rare.
Given the possibility that the bear market catalyst might be removed over the next couple of months, we expect the bear market recovery to be relatively swift by historical standards—potentially faster than the 20-month average and hopefully closer to the non-recession bear market recovery average of 10 months. The key to a possible rebound, beyond timely containment of COVID-19, will be investor confidence in recovery. The bold policy response, part of our Road to Recovery playbook, is helping bridge many businesses to the other side of the crisis.
We think chances are good that 2020 ends up being closer to the middle of the accompanying chart rather than the far left. During these uncertain times, it’s important for investors to keep in mind that markets are forward looking. The latest bounce off of the late-March lows provided evidence that market participants are doing just that. We don’t know if a durable stock market low is in just yet, and volatility may pick up again as more bad economic news and corporate stress is revealed. Our resolve is being tested, but we remain optimistic about prospects for a strong recovery in the second half of the year.
For more of our investment insights, check out our latest Weekly Market Commentary here.
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