It finally happened. On Monday, June 13th, the S&P 500 Index moved into a bear market, finally closing 20% beneath the January 3 high. And then last week, the S&P 500 Index rebounded 6.46%, to bring the year-to-date return to -17.3%.
Here are 5 things to know about bear (and bull) markets:
1) Here are all the bear (and near bear markets) since 1950. This bear market is actually already old by recent standards. At more than five months old, it is already older than six other bear markets going back nearly 40 years. Only the tech bubble and Great Financial Crisis bears lasted longer.
This could mean the bear market could be closer to a bottom than many expect.
2) What could happen next? As we show in the LPL Research Chart of the Day, the good news is a year after the S&P 500 moves into a bear, stocks actually do pretty well, up an average of nearly 15% a year later with a very solid median gain of 23.8%.
The catch, and there’s always a catch, the returns a year later were negative in the 1973-74 recession, the tech bubble, and the Financial Crisis (2008-2009). The good news is we don’t see an economy like that over the next year, so the likelihood of higher prices (maybe significantly higher) is quite strong, in our view.
5) Since the S&P 500 Index moved to 500 stocks on March 4, 1957, it has made 1,184 new all-time highs and it has always eventually achieved new highs, even if it doesn’t feel that way today. Wars, sky-high inflation, recessions, bubbles, 100-year pandemics, geopolitical events, policy mistakes, and more have all happened over this time, but stocks have always come back eventually to new highs. We do not think this time will be any different. As long as businesses can grow earnings over the long run, the fundamentals are in place for future stock gains, which means new highs could be coming as well.
They say the stock market is the only place things go on sale and people run out of the store screaming. Please remember that before you make any rash investment decisions.
Please reach out with any questions.