Is a 2023 stock-market rebound in store after 2022 selloff? What history says about losing years. – MarketWatch

December 21, 2022 by No Comments

History shows back-to-back losing years for the stocks are rare — but the size of the market’s drop in 2022 with no sign the Federal Reserve is ready to ride to the rescue means investors should beware, analysts warned.

With just a handful of trading days left in what is shaping up to be the worst year for the U.S. stock market in over a decade, the S&P 500 index is on track to close out the year down more than 18%.

That is the large-cap index’s first double-digit percentage loss since 2008, when it slid 36.6% during the global financial crisis, according to Dow Jones Market Data. 

However, it is extremely rare for the S&P 500
to post back-to-back down years. The S&P has fallen for two straight years less than 10% of the time from 1928 to 2021. In the year after a negative total annual return for the S&P, the index is up by 12.6% on average and is positive 17 out of 25 years, according to data compiled by DataTrek Research.

But the market’s performance after posting a double-digit percentage drop has been less straightforward.

“The S&P 500 has a much better win rate (79% vs 55%) and average performance (up 17.5% vs. 6.4%) in the 12 months following a down calendar year of less than 10% than one that does worse than that, and 2022 is shaping up to be in the latter camp,” said Jessica Rabe, co-founder of DataTrek Research, in a Tuesday note.

Rabe, however, noted that in the few instances when the S&P 500 has dropped consecutive calendar years, it’s been due to a major economic event, such as the Great Depression between 1929 and 1939, or a geopolitical shock, such as the World War II and the oil crisis in 1972, or both, in the case of the early 2000s when there was the bursting of the dot-com bubble, the Sept. 11, 2001, terror attacks and the subsequent U.S. invasion of Iraq. 

She argued that there would likely need to be another major economic or geopolitical crisis for the S&P 500 to fall for a second consecutive year in 2023. However, help from the Federal Reserve in the form of lowering interest rates or a rise in federal government spending would be crucial for a bounce in the U.S. equities after a hard year. 

“The Financial Crisis is a useful example to show that when times get truly difficult, fiscal and monetary policy stimulus can help the S&P rebound after a horrible year,” Rabe wrote.

The S&P 500 booked an annual …….



Leave a Comment

Your email address will not be published. Required fields are marked *