When it comes to charting the future of the stock market, history might be the best teacher.
The S&P 500, the stock index that tracks the nation’s largest companies, has had a tough year. In June, after months of losses, it officially entered a bear market, having fallen more than 20% from its January peak.
It has now been 10 months since that last high, and the market has been in near-continuous decline ever since. A series of high inflation readings pushed the S&P 500 higher on a near-monthly basis, and the market has already posted its worst first half since the 1970s.
Since then, the bear market has shown very few signs of turning bullish, and it may take even longer, according to analysts at investment and wealth management firm Glenmede.
Based on historical evidence, we may still be only two-thirds of the way through this current bear market, Glenmede analysts led by private wealth investment director Jason Pride warned in a note sent Monday to customers.
“The current market appears to be following the trajectory of the average historic bear market so far,” the analysts wrote, noting that each bear market since the end of World War II has averaged just over 14 months and has seen the markets hit hard. bottom with an average decline of 35.7%, at which point they began to rebound.
“At around 10 months and 21%, the current bear market appears to be close to 2/3 of the typical bear market decline,” they added.
This is a similar forecast to the one made in Fortune by journalist Ben Carlson in July, when he noted that there had been 13 bear markets since World War II (including the current one) lasting an average of 12 months and peaking with a loss of 32, 7%. It took markets around 21 months on average to rebound to a new high.
The S&P 500 is currently enjoying a mini-recovery – up almost 9% since hitting a low in mid-October – although Glenmede warned that the recent surge “should not be unexpected” after the market sentiment reached historic lows at the start of the month.
Small rallies like these may be typical of a bear market, analysts have warned. The market has shown some signs of life since it deteriorated this year, although some short-lived rallies or “bear traps” have occasionally caught the attention of investors, when stock prices temporarily drop and deceptively from a downward spiral to an upward swing.
Glenmede warned that these were likely false signals and that investors should remain cautious for the remainder of the bear market, and pointed to additional evidence suggesting the bear market is only two-thirds of the way through.
Growth stocks, including the top-flight tech stocks of the past decade, have been hit the hardest by the bear market, as highlighted by a series of dismal earnings reports last week from mega-cap companies, including Meta, Amazon and Alphabet, the parent company of Google. Glenmede analysts pointed out that about two-thirds of the extreme valuations of growth stocks relative to low-priced value stocks have been wiped out in the current market downturn.
Analysts have also anticipated a meeting of Federal Reserve officials this week, when Fed Chairman Jerome Powell is expected to announce the sixth interest rate hike for 2022 in a bid to rein in soaring US inflation. United States.
Depending on how, or if, the economy reacts to the next hike, Fed officials could approve another rate hike in December, with more likely in store for 2023.
The Fed’s aggressive rate hikes have sparked widespread fears that they will inevitably trigger a recession in the United States and around the world, but with interest rates currently forecast to stop rising at 5% by next March, the Fed is currently two-thirds of the way there. there, according to Glenmede analysts.
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