With the S&P 500 well off record highs and fears of a recession rising, many investors are nervous. But not all bear markets in the past have resulted in a long-term down market, contends an article in Forbes, and stocks often recover over the next several months following a bear market.
The S&P 500 dipped briefly into bear market territory on May 20th—down over 20%—and remains down amidst high inflation and rising interest rates. While the last bear market was at the start of the pandemic in March 2020, that one was very short compared to others in the past. And indeed, each bear market is unique, the article maintains. Since World War II, 8 out of 14 bear markets were coupled with a recession, but the other 6 did not. And in half of those 14 bear markets, the S&P 500 hit its lowest point within 2 months of first dropping below that 20% benchmark—and then climbed back up an average of 18% over the next year.
Historically, the S&P 500 has fallen another 12% after hitting the 20% threshold, with 95 days being the average time it takes to come to the end of the bear market. And if the U.S. can avoid a recession, that would shorten a bear market: in the past, bear markets that preceded a recession lasted about 449 days as opposed to 198 days when it was not followed by a recession.
This is the market’s longest losing streak in decades; the Dow Jones Industrial Average posted declines for 8 straight weeks, its worst streak since 1932, and the S&P 500 and the Nasdaq Composite dropped for 7 weeks in a row in their worst streaks since 2001. The S&P 500 in particular has only done worse three other times (1970, 1980, and 2001) and each time it stayed in the negative for a year afterwards. Several Wall Street institutions have warned that the index could drop between 11% and 24% if the economy devolves into a recession—a scenario that seems more possible as inflation persists and worried investors continue to their massive sell-off.
