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Market Declines of over 19% Historically Offer Buying Opportunities – 1945 to 2022

The S&P500 is now down 20.48% year to date. The general rule is that a decline of 20% or more from recent highs can be considered a “bear market.” Since nothing but a faulty memory can change the past, it is only helpful, at this juncture, to try to discern what will occur in the future. The aphorism “Don’t cry over spilled milk.” comes to mind.

To find a roadmap for going forward, TPA looked back over the past 77 years or since World War II to see what happened after previous bear markets. After some initial research, we broadened our scope to include an additional 2 occurrences in 2011 and 2018, in which the declines were a fraction shy of the normally required -20% (2011 -19.39% and 2018 -19.78%). TPA found that, although in some cases it required some grit to see it through, in an overwhelming majority of cases, buying after bear market declines rewarded investors 1 year out.

The table below examines 18 occurrences of declines of 19% or more. We used peak to trough performance and closing prices. We then examined performance 20, 60, 120 and 240 trading days after the trough date. These trading day periods roughly mark 1, 3, 6, and 12-month calendar periods. The following conclusions were reached:

  1. The average 240 trading day performance is +18.26%

  2. The best 240 trading day performance is over 56% (after the 2020 decline)

  3. The worst 240 trading day performance is -20.35% (2001)

  4. The market was higher 83% of the time 240 trading days after the declines

TPA also provides eight 10-year charts below as a visual guide to the 18 serious declines of the past 77 years.

Will history repeat itself? Mark Twain has been credited with saying that “history does not repeat, but it does rhyme.” We interpret this to mean that history is never exactly the same, but patterns do tend to repeat. If this is the case, there is a very good probability that clients that buy soon will be pleased a year from now.

Click HERE for all charts.

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