When the S&P 500 fell into a bear market on June 13, closing down more than 20% from its last peak, it stirred debate about whether investors should hold tight or think about buying the dip.
The SPX stock prices may look tempting for investors but analysts at the Wells Fargo Investment InstituteWells Fargo Investment Institute warned that the technical damage may take time to repair in this bear market. The team spotted 11 past S&P 500 bear markets since World War II, and found that the downdrafts lasted an average of 16 months see chart and produced a negative 35.1% bear market return.
Another key takeaway was that past bear markets outside of an economic recession were much shorter - about 6 months on average - and had a slightly less damaging bear market return of 28.9%.
The duration extended to about 20 months on average with a recession and a more severe 37.8% return.
The current bear market is backdated to Jan. 3, when the S&P 500 closed at an all-time high of 4,796. According to Dow Jones Market Data, 56 were found. It's already deep into its fifth month.
It may be tempting to try and take advantage of recent weakness, but for now we prefer to wait for more entry points in coming months before investing in equities, according to the Wells team.
With the Federal ReserveFederal Reserve just beginning to tighten, we have shifted our investment preferences away from economically sensitive assets to more quality-oriented and defensive assets. New York Federal ReserveFederal Reserve President John Williams said he believes the U.S. economy will slow but that a recession can be avoided. He said that the Fed's policy rate could hit 4% sometime next year, up from its current 1.5% -- 1.75% target range, to help cool high inflation.
The Dow Jones Industrial Average DJIA was down nearly 300 points, the S&P 500 was down 1.4% and the Nasdaq Composite Index COMP was down 2.3%, according to FactSet.
You can tell if the bear market is nearing an end when anxious investors push the panic button.
The presidential election cycle shows that the stock market may bottom in the third quarter before the fourth, analyst says.