Everyone loves a bear market - especially the talking heads you see on TV. Bull markets are harder to love. The narrative of the bears just seems a lot more sophisticated than the bulls'. They feed off of our fear - it's pretty simple if you ask me.
It's been just over six months since the S&P 500's low last October when the index was 25% below its 52-week high. In fact, it was made on October 12th, 2022. Since then, the S&P 500 has not retested those lows - it's now only down 7.2% since its 52-week high.
Looking back in history, since WWII, there have been 13 instances when the S&P 500 went more than six months without making a new closing low after dropping 20%+ from a 52-week high.
The chart below shows how the S&P 500 performed in the year following the major low. As you can see, the only two periods that the S&P 500 made a new low after going six months without a lower low were after the lows in October 1946 and September 2001. Following the low in October 1946, the S&P 500 only made a marginal new low, within the six months after the first six months while in 2001, the lower lows were more significant.
Now that we're at the six-month mark since last October's lows, the table below shows the performance of the S&P 500 across these past occurrences over the next year. As shown, aside from 2001, performance across the board was positive six and twelve months later (or twelve and eighteen months after the initial low).
When looking at all periods, we see that the stock market is positive 92.3% of the time one year later, with an average return of 14.40%, and positive 71.1% of the time for post-WWII periods with an average return of 8.57%.
Investment decision-making shouldn't be binary - in or out. There are many ways to play the market - odds and probabilities.
Jonathan Sim and I discuss more of what is going on in financial markets in last week's The Wide Lens Podcast.