The S&P 500 is on track for its worst first half in 52 years after the calendar flipped over to 2022, the beginning of a bear market that began just after the calendar flipped over to 2022. The history is not a good guide for investors looking ahead to the end of the year.
The S&P 500 SPX was down 19.8% year-to-date through Tuesday s close, which would be its worst first half since 1970, according to Dow Jones Market Data. The large-cap benchmark is down 20.3% from Jan. 3. The index ended up more than 20% less than the January record of January, confirming the fact that the pandemic bull market had ended on January 3, marking the beginning of a bear.
The S&P 500 bounced back around 4% from its low 2022 close of 3,666 on its way to the S&P 500. The S&P 500 bounced back after past first-half falls of 15% or more, according to data compiled by Dow Jones Market Data. The sample size is small, with only five instances going back to 1932 - see table below. The S&P 500 did rise in each of those instances, with an average rise of 23.66% and a median rise of 15.25%.
Investors may want to pay attention to metrics around bear markets, particularly with speculation around whether the Federal Reserve's aggressive tightening agenda will sink the economy into recession.
A study by Wells Fargo Investment Institute found that recessions lasted for 20 months and produced a negative 37.8% return. Bear markets outside a recession lasted for 6 months on average — nearly the length of the current episode — and saw an average return of - 28.9%. Together, the average bear market lasted an average of 16 months and produced a - 35.1% return.
The presidential election cycle shows that the stock market may bottom in the third quarter before the fourth quarter, analyst says.
The major indexes are poised to log historic first-half declines. The Dow Jones Industrial Average DJIA was down 14.8% in the year to date, which would be its biggest first-half fall since 2008.
The second-half performance for the blue-chip gauge is variable, after declines of 10% or more in the first half. The Dow dropped another 22.68% in the second half of the year after 2008 during the worst of the financial crisis.
In 15 instances, the Dow gained just shy of 7% and an average second half rise of 4.45% in the second half.
The tech-heavy Nasdaq Composite COMP was down 28.5% year-to-date through Tuesday s finish, but there was little to go on when Dow Jones Market Data looked back at first-half drops of at least 20% for the gauge.
There were only two instances — 2002 and 1973 — and both saw the Nasdaq slide over the remainder of the year, falling around 8.7% over the second half in both instances.
Also see: Major bond ETFs are on pace for the worst first half of the year on record.