Bear Market Recoveries

February 19, 2019

Investors have been especially patient during the S&P 500 Index’s 93-day drought of record highs, especially considering the gauge has posted a new high every 12 days on average in this bull market.

However, history shows the S&P 500 typically takes some time to bounce back after swift drawdowns, like the 20% intraday slide investors experienced late in 2018. As shown in the LPL Chart of the Day, U.S. stocks have taken an average of a year to recover from intraday bear markets over the last 60 years.

stocks take a year to recapture pre bear market peaks

To be fair, stocks have recovered quickly this year, bolstered by heavily oversold conditions at the bottom of the selloff. It’s been about a month and a half since the S&P 500 bottomed on December 24, 2018, and the index is already about 7% from its September peak. The S&P 500’s 7.9% gain last month was its best for a January in over 30 years, and the benchmark could cap its sixth straight daily gain today.

Solid economic growth and flexible monetary policy have also aided in stocks’ recent recovery, and we believe improving fundamentals could carry the S&P 500 higher. On average, the S&P 500 has taken about 6 months to reach a new peak after a non-recessionary bear market, compared to 1.6 years (about 19 months) to recapture the peak when the U.S. economy is in a recession. While global risk could hinder stocks’ next leg up, we expect to see a trade resolution and stability in the near term.

“We encourage investors to be patient with U.S. stocks, as we expect the S&P 500 to reach new highs this year,” said LPL Research Chief Investment Strategist John Lynch. “Volatility could persist as the economic cycle ages and global headwinds persist, but we believe stocks can find further support from steady economic growth and higher corporate profits as the impacts of fiscal stimulus continue to flow through.”

As mentioned in our Outlook 2019, we forecast that the S&P 500 will end 2019 at 3,000.


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