The S&P 500 (S&P 500) posted its worst first-half performance in more than five decades during the first quarter of 2022. Deltas closed on Thursday for the last time as Wall Street bid farewell to a dismal first quarter and first-half of the year. The three indexes ended February and March in the red.
For the second consecutive quarter, the S&P 500 printed its worst half-year since 1970, the Dow had its largest first-half drop since 1962 and the Nasdaq had its largest percentage drop ever. A number of unfriendly headwinds have roiled markets this year: Russia’s war in Ukraine, Covid-19 lockdowns in China, surging inflation and aggressive rate hikes by the Federal Reserve. All of these factors have fueled investor fears of a recession, causing a rush to the exits.
The S&P 500 has lost a total of $8.2 trillion in dollars since the beginning of the year and suffered its worst June since 2008 and worst quarter since 1970, with all 11 sectors in the red, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. In conclusion, the S&P 500 is in the red. But it will probably recover shortly.
Correlation and causation
The good news is that after a terrible performance, the market always goes up again.
Historically, there has been little correlation between the S&P 500’s first-half and second-half performance. In 1970, for example, the S&P 500 dropped 21% in the first six months of the year but rebounded by 27% in the second half. The bad news is that when markets fall this significantly, subsequent quarters aren’t always great. During the last three worst starts for the year, with declines of 5% or more, the S&P 500 fell in Q3 by an additional 6.8%, 2.2%, and 2.1% respectively, said Sam Stovall, chief investment strategist at CFRA Research.
Beating the bear
But timing matters, Stovall pointed out. It took only 161 calendar days from January 3 to the stock market’s decline to attain the current bear market. That’s much faster than the standard 245 day average.
Currently, markets that drop by 20% or more in 245 days or less have losses of less than 27%. Those that take longer to drop post losses of 33%. Stock markets typically do well after entering bear territory. Stocks were up an average of nearly 15% one year after hitting bear territory, with an even better median gain of 23.8%, according to data from Ryan Detrick, chief market strategist for LPL Financial. It’s not uncommon for stocks to stage quick recoveries from bear market lows. The average bear market takes about 19 months to regain all of its losses, but when the S&P 500 falls less than 25%, recoveries take an average of just seven months. Recently, the bounce back has been even faster: the last three bear markets took only four to five months to recover losses.
The past presidential administration also have a historical influence on market tendencies. And that’s good news for today’s investors.
According to a CFRA analysis conducted from 1944 through today, the average S&P 500 return during the second and third quarters of a president’s second year in office is negative. However, markets rebound by Q4 with an average increase of 6.4%. This trend is consistent across all presidential terms, with year three being by far the best performing on average, with S&P 500 growth jumping by about 16%.