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Bear Market Analysis

With the 4% drop yesterday, the S&P500 is now down over 21% from it’s highs of January 3rd, 2022.

A drop of 20% is often called a “bear market” so we thought we would look at all the “bear markets” we could find and see how stocks performed after they reached that magical 20% down level.

In the past, once the S&P500 reaches the down 20% threshold, forward returns tend to be better than average, especially over the following year, and in more than half (8) of the fourteen bear markets analysed, the low was within two months of the 20% threshold being reached.

Of the 6 bear markets that didn’t reach the low within two months, 3 dragged on for more than six months before the next rally of 20%+ commenced.

Performance of the S&P500 following the 20% threshold is positive across all time frames of one week, one month, 3 months, 6 months and 12 months, with the 12 month performance being outstanding at an average of +23.9%.

So, for any of you out there thinking now might be a good time to sell……history says different and we should be looking to buy, now we have reached the key down 20% level.

Of course, the problem is, historical returns cannot predict future returns and there is always the risk of more selling as happened in 1974, 2001 and 2008.

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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