Wednesday, May 18, 2022
It has been a historically bad year so far for stocks, with many names in bear markets. Thus far though, the S&P 500 Index has avoided a bear market (classified as a 20% decline from recent highs), as it was down 18.1% as of last week.
Here are six things to know regarding bear markets.
1) There have been 17 bear (or near bear markets) since World War II. The average drop was nearly 30% and lasted nearly a full year.
2) Breaking down bear markets with recessions and without recessions shows an interesting development. Should the economy be in a recession, the bear markets get worse, down 34.8% on average and lasting nearly 15 months.
3) Whereas as shown in the LPL Chart of the Day, should the economy avoid a recession, the bear market bottoms at 23.8% and lasts just over seven months on average. Even more interesting is we’ve seen multiple near bear markets bottom near 19%, close to where stocks bottomed last week.
“Going back more than 50 years shows that only once was there a bear market without a recession that lost more than 20% and that was during the Crash of 1987,” explained LPL Financial Chief Market Strategist Ryan Detrick. “With other near bear markets without a recession bottoming near 19% corrections in 1978, 1998, 2011, and 2018, not far from the recent lows.”
4) Midterm years can be quite volatile with the average year down 17.1% peak to trough, so a bear market during this year isn’t out of the ordinary. Knowing that helps put this year’s drop of 18.1% in perspective. The good news is a year off those lows, the S&P 500 has gained 32.0% on average, something most investors would likely take right about now.
5) Here are the fastest bear markets ever. Not surprisingly, the pandemic related bear market of March 2020 was the fastest ever, going from a new high to down 20% in only 16 trading days.
6) This is the third year of the current bull market and the third year tends to see somewhat muted returns, up barely 5% on average. In fact, there have been 11 bull markets since World War II and three of them ended during their third year.
So those are six things to know about bear markets. Lastly, speaking of six, the S&P 500 is down six weeks in a row currently, the longest losing streak since 2011. It hasn’t been down seven in a row since 2001. What stands out about this data is if the six week losing streak is down more than 10% (like this one was), then the future returns can be quite strong. Up a median of 9.9% six months later and 29.2% a year later.
For more on how close stocks are to a low, the strong first quarter earnings season, and why the 60/40 portfolio isn’t dead, please watch the latest LPL Market Signals podcast with Jeff Buchbinder and Ryan Detrick, as they break it all down.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Tracking # 1-05280987