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Wounded US stock investors may find optimism in bear market history
Investors suffering losses from the selloff in US stocks in 2022 can take comfort in how stocks have performed since previous bear markets.
The S&P 500 has gained an average of 15% in the three years since entering a bear market, according to an S&P Dow Jones Indices analysis of 12 such declines from 1929 to 2019. The indicator entered the last bear market on June 13, 2022 after dropping 20% from its peak at the beginning of the year.
“At the end of every bear market, there is a bull market,” Sherifa Issifu, senior U.S. stock index analyst at S&P Dow Jones Indices, wrote on her Indexology blog. However, history “shows the importance of being cautious in a bear market.”
Stocks have rebounded from the worst of the 2022 downturns, with the index up about 10% since the mid-October low, fueled by optimism that the Federal Reserve might not raise rates as quickly as previously feared. The recovery was limited by continued economic problems, including a slowdown in US manufacturing and the worst S&P Global Financial Volatility Indicator since the global financial crisis.
“With aggressive policy normalization and an expected recession, financial conditions are likely to worsen further this year,” Beth Ann Bovino, chief US economist at S&P Global Ratings, wrote in an economic research update.
Looking at previous bear markets, the S&P 500 posted positive three-year returns eight times out of 12 after entering a bear market through 2019. Another positive example is just around the corner as March marks the third anniversary of the 2020 COVID-19 bear market. .
The largest three-year rebound in the study was a 63% increase under President Ronald Reagan through 1985. The worst result was a 75% drop after the index went into a bear market during the Wall Street crash of 1929.
For the year, stocks are up 9% on average after entering a bear market, with only five losses out of 13. The post-COVID-19 panic rally in 2020 led the way with stocks up 59% in 12 months.
The last bear market entry was in June 2022, so we can only compare six months of results. This is favorable because, according to S&P Global, the gain of 5% has exceeded the average of 1% for all bear markets since the beginning of 1929.
However, the index declined after hitting a six-month mark in December amid an unclear economic picture. For example, according to the JPMorgan Global Manufacturing PMI, U.S. manufacturing deteriorated at the fastest pace since May 2020 in December. The increase in the Fed’s borrowing costs and continued high inflation have also weighed on the stock’s recent performance.
“Pressure from aggressive central bank rate hikes to combat inflation and recession fears ended a tough year for global markets,” S&P Global Research Signals said in a December report. Markets also started the new year on negative economic indicators.
Today Wednesday, January 25, 2023and here is today’s essential intelligence.
Written by Neil Denslow.
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