If there’s anything to hang your hat on during the current bear market in stocks, it’s that long-term markets tend to bounce back very well.
The S&P 500 has been higher three years later in eight of the nine times the index has fallen 20% or more from its all-time high dating back to 1957, according to research by Truist co-chief investment officer Keith Lerner. The stock has returned an average of 29% over those eight instances.
Interestingly, the stock has also rebounded strongly a year after falling 20% or more from a peak. Lerner’s data show the S&P 500 has risen an average of 15% the seven times the stock has fallen 20% or more since a peak dating back to 1957.
“Given the wide range of results,” Lerner wrote in the note to clients, “our view is that this is not the time to be aggressive, but we also do not advocate reducing equity for investors who are aligned with their long-term capital. At this point, many of the excesses have been erased.”
Stocks tend to bounce back after big drops.
According to Lerner, investors have moved quickly this year to buy stocks back amid skyrocketing inflation and a Federal Reserve stalled and loaded with interest rate hikes.
The S&P 500, the Nasdaq Composite and the Dow Jones Industrial Average are having their worst start to a year in decades. Lerner more accurately notes that this is the third-worst half-market performance since 1950 and the weakest since 1970.
Virtually no area of the market has been spared from the teeth of the bears.
Growth stocks like Amazon, Tesla and Netflix are down more than 30% through 2022. A relatively safe haven like Apple is down 18% for the year.
In general, markets continue to monitor the recession in the US, the world’s largest economy.
The bull sculpture depicting the rise of the market (R) and the bear sculpture depicting its fall in Frankfurt am Main, west Germany, on December 28, 2020. (Photo by ARMANDO BABANI/AFP via Getty Images)
The Atlanta Fed’s GDPNow model now projects a 2.1% drop in second-quarter U.S. economic output, which would meet the unofficial threshold for a recession when combined with the 1.6% decline in the first quarter.
“This is really a very difficult time to think very long-term,” BlackRock’s head of global allocation thematic strategy, Kate Moore, told Yahoo Finance Live (video above). “We know there are a lot of cross currents right now in the market. It’s not just monetary policy and the durability of inflation, but also what’s going on geopolitically.”
The story continues
Three years from now couldn’t come fast enough for investors.
Brian Sozzi is managing editor and anchor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi yen LinkedIn.
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