By Debra Taylor, CPA/PFS, JD, CDFA™
As bad as 2022 has been, there is a silver lining: back-to-back declines in the S&P 500 are rarer than you may think. If you go all the way back to 1950, the only times that stocks fell in back-to-back years were during the vicious recession of 1973/1974 and then three years in a row during the tech bubble implosion of the early 2000s. Fortunately, we don’t see similar scenarios within the current environment, so I think the odds could favor a snapback in 2023.
Taking a closer look at the data:
The year after a negative return saw the S&P 500 up 15% on average and higher 80% of the time. A 10% (or greater) loss showed the following year up only 8.5% on average and higher 63.6% of the time. Out of the 20 negative years, only three times did returns get worse the following year (in 1974, 2001, and 2002). However, the following year, significant losses were rewarded as 20% or more declines saw the next year higher all three times and up 27.1% on average (in 1975, 2003, and 2009).
Let’s take a quick look at the S&P 500. The S&P 500 entered a bear market in June and has been stuck ever since. On the brighter side, looking at just the last seven bear markets since the 1987 crash, we have seen the market bounce back an average of 43.6% after dropping 33.1%.
So, there are still plenty of reasons for hope in 2023.
As always, please reach out with any questions.