What Happens After a 20% Equity Downturn?
Equity markets have begun to show some signs of life as companies have been reporting reasonable earnings. It’s important to note that companies have also been guiding earnings lower based on uncertainties related to inflation and global geo-political conflicts. I expect the next several months to be a bouncy time in the markets and one should probably not focus too much on the ups and downs as an indication of a long-term trend.
I do think it is helpful to look back over history to see what markets have done after corrections and bear markets; it’s instructive and in this case, we believe, reassuring. A recent article on Yahoo Finance outlined this very clearly and I am providing a few paragraphs here for your review. I think you will find it interesting.
“If there is anything to hang your hat on during the current bear market in stocks, it's that longer term markets tend to rebound very nicely.
The S&P 500 has been higher three years later in eight out of nine cases in which the index has fallen 20% or more from an all-time high going back to 1957, according to research from Truist co-chief investment officer Keith Lerner. Stocks have returned on average 29% during those eight cases.
Interestingly, stocks have also sharply regained ground a year after falling 20% or more from a high. Lerner's data shows the S&P 500 has increased 15% on average in the seven times stocks have tanked 20% or more from a high dating back to 1957."