Does This Market Have Staying Power?
Stocks escaped the bear’s grip. What comes next
Investors cheered last week as the S&P 500 broke free of the bear market that had taken the index down more than 25%.
With the added gains of the past few days, the S&P 500 is now up 21.3% from its recent low point last October (although it’s still 9.5% off the all-time high it hit in January 2022.)
The big question on investors’ minds, of course, is: What happens next? While there’s no guarantee, history tells us that the current market may have some wind at its back.
For example, we identified the specific instances when the S&P 500 rallied by 20% following a drawdown of 20% or more—as it did last week—going back to 1928. The index’s average return over the next six months was 7% in those cases. That’s significantly higher than the overall average rolling six-month return of just 2.9% (see the chart).
Source: Bloomberg, as of 06/12/23
What’s more, in most cases, the index was higher six months after the initial 20% rally.
These findings, which suggest the possibility of further gains from here, help support the case for holding equities rather than moving to cash—as do recent strong economic and jobs data that have given investors confidence.
From a goals-based investment perspective, we believe the growth potential offered by equities remains attractive to investors at all stages—from those seeking to build wealth for the future to those looking to ensure their savings last for the duration of their retirements (and beyond) while meeting their spending goals. As always, our flexible, dynamic investment process will focus on identifying opportunities while mitigating those areas of the market with unattractive risk-reward characteristics.
Disclosures
This commentary is written by Horizon Investments’ asset management team.
Past performance is not indicative of future results.
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