“Life is like riding a bicycle. To keep your balance, you must keep moving.” – Albert Einstein
The S&P 500 Index was down more than 20% on an intraday basis on Friday, May 20th, but managed a huge rally late to avoid closing down 20% and moving into an official bear market. With the S&P 500 down 16.2%, as of the close of business on May 25, 2022, a bear market is still quite possible.
One popular question has been what happens after stocks go into a bear market? “As rough as bear markets are, the good news is the future returns really improve once stocks are down 20%,” explained LPL Financial Chief Market Strategist Ryan Detrick. “In fact, a median gain of nearly 24% a year after a bear market starts may help some beaten-down bulls confidently stay the course.”
One more look at the table above shows that only three times were stocks lower a year later and all were associated with major recessions. We do not see a recession on the horizon, which could be a clue returns could be strong going out a year.
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