Shares closed Thursday as Wall Street said goodbye to a disappointing second quarter and first half of the year.
All three major indices ended the month and quarter in the red.
The S&P 500 posted its worst half-year run since 1970, the Dow’s biggest drop since 1962 and the Nasdaq’s biggest percentage drop ever. This is the second consecutive quarter of declines in the three indices.
This year the markets have been hit by a number of adverse conditions: Russia’s war in Ukraine, the COVID-19 lockdown in China, rising inflation and aggressive rate hikes by the Federal Reserve. All these factors have fueled bearish fears among investors, prompting a quick exit.
According to Howard Silverblatt, senior index analyst for the S&P Dow Jones Index, the S&P 500 has lost $8.2 trillion in total dollars since the start of the year and suffered the worst June since 2008 and the worst quarter since 1970. had to do. ,
In short, things are looking dire. But that doesn’t mean they will remain that way.
correlation and causation
The good news is that after a poor performance, the market has always gone back up… eventually.
There has been little correlation, at least historically, between the performance of the S&P 500 in the first and second half of the year. According to data from the S&P Dow Jones Index, the S&P 500 declined 21% in the first six months of 1970, but gained 27% in the second half.
The bad news is that when the market is down significantly, the next quarter isn’t always a good one. Sam Stovall, chief investment strategist at CFRA Research, said that during the last three worst starts, the S&P 500 lost an additional 6.8%, 2.2% and 2.1%, respectively, in Q3 after falling 5% or more.
Bear beating
But timing matters, Stovall said. It took only 161 calendar days for the market to fall from its peak on January 3 to the current bear market. This is much faster than the typical 245 day average time frame.
And a fast bear is usually not as big and scary as a slow, hawking one. In the past, markets that took less than 245 days to go from peak to bear, measured by a range of 20% decline, recorded losses of less than 27%. Those who take longer to post a loss of 33%.
US stocks generally perform well after entering bear markets, at least over the long term. The stock was up about 15% on average a year after hitting bear territory, with a better average gain of 23.8%, according to data from Ryan Detrick, chief market strategist at LPL Financial.
Detrick said it’s not unusual for stocks to make a quick recovery from bear market lows. The average bear market takes about 19 months to recoup all of its losses, but when the S&P 500 falls less than 25%, it takes an average of just seven months to recover. Recently, the bounce back has intensified: it took only four to five months to recover losses in the last three bear markets.
the president is feeling
Stovall said that presidential circles have historical implications for markets as well. And that’s good news for today’s investors.
According to a CFRA analysis from 1944 to the present day, the average S&P 500 return during the second and third quarters of the president’s second year in office is negative, but the market rebounded from Q4, with an average growth of 6.4%.
The third year of the president’s term is one of the best-performing ever, with, on average, S&P 500 growth of nearly 16%.
So here’s to a very green 2023!