Does a bad market start mean a bad finish?
Stocks had one of their worst starts in 2022. In fact, the S&P 500 has not started this badly in over 50 years, dropping 21% in the first six months of 2022. The Nasdaq index was down 30%. No one can tell what the next six months in 2022 will bring, but some points to keep in mind:
- Historically, 78% of the market’s best days occurred during bear markets before it was clear a new bull had begun.
- Being out of the market could mean missing out on its turnaround.
The chart below shows other years where the market started off poorly, with declines of 8% or more through May. In eleven out of 13 of those years, or 84% of the time, the market did better in the second half. And in 62% of those years, the second half showed positive returns.
We’ve been through difficult markets before, and the market invariably turns around and climbs higher. During this particular downturn, the market is adjusting to higher interest rates and finding an equilibrium in terms of valuation. This will lead to an attractively valued market.
- A bad start to the market does not mean the rest of that year will be bad.
- Despite negative performance early in the year, the stock market has tended to turn around later in the year.
- Over the long term, bad starts have not had a long-lasting effect on the market’s overall progress.
- Though market declines can be painful in the short term, staying invested is a better long-term strategy than trying to time the market and jumping in and out.
Years with Declines of 8%
S&P 500 Index (%)
|January –May||June –December|
|2022||-13.3||To be determined|