Big Annual Declines Are Rare

Stocks have rallied nicely off the March 23 lows on the back of a bold policy response from the Federal Reserve (Fed) and lawmakers in Washington, DC, which was followed by signs that a peak in growth of COVID-19 cases may come soon. At Wednesday’s close, the S&P 500 Index stood 19% above the March 23 closing low but down 17.7% for the year. That begs the question whether a positive year is possible with a pretty big hole still left to dig out of.

“A positive year for the S&P 500 is still possible but will require a steady recovery in economic growth and corporate profits in the second half of the year,” noted Jeffrey Buchbinder, LPL Financial Equity Strategist. “We remain hopeful that COVID-19 can be contained over the next month or two and enable the US economy to begin to open up early this summer, but it’s just too early to tell.”

As we see in the LPL Chart of the Day, big down years are rare. In fact, since 1950, the S&P 500 has fallen more than 15% just four times (1973-74, 2002, 2008).

All indexes are unmanaged and cannot be invested into directly.  Past performance is no guarantee of future results.

View expanded chart.

So might 2020 look like 2009, a big up year for stocks as the worst of the financial crisis passed and markets looked ahead to recovery? That year the S&P 500 was down 25% year to date before rallying to end the year higher. Or is this another 1973-74, or even 2000-2002, with stocks in the doldrums for an extended period?

Given the possibility that the bear market catalyst might be removed over the next couple of months, we expect the bear market recovery to be relatively swift by historical standards—potentially faster than the 20-month average and hopefully closer to the non-recession bear market recovery average of 10 months. The key to a possible rebound, beyond timely containment of COVID-19, will be investor confidence in recovery. The bold policy response, part of our Road to Recovery playbook, is helping bridge many businesses to the other side of the crisis.

We think chances are good that 2020 ends up being closer to the middle of the accompanying chart rather than the far left. During these uncertain times, it’s important for investors to keep in mind that markets are forward looking. The latest bounce off of the late-March lows provided evidence that market participants are doing just that. We don’t know if a durable stock market low is in just yet, and volatility may pick up again as more bad economic news and corporate stress is revealed. Our resolve is being tested, we but we remain optimistic about prospects for a strong recovery in the second half of the year.


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The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90. All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.

This Research material was prepared by LPL Financial, LLC.

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