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What to Know About Bear Markets

Although the S&P 500 Index has not yet closed in bear market territory—a 20% or more decline from the record high on January 3, 2022—it is very close. In the latest LPL Market Signals podcast, Jeff Buchbinder and Lawrence Gillum discuss historical stock market performance that occurred after bear markets began to help prepare investors for what might be coming. They also highlight key potential catalysts to turning this market around, including lower inflation and a possible Federal Reserve (Fed) pause later this year.

Four Things to Know About Bear Markets

Jeff and Lawrence discuss bear markets and highlight four things to know: 1) After the S&P 500 enters a bear market, historically the gain over the next year has been a median of 24%; 2) the median number of trading days for bear markets to bottom is 81, but five of them bottomed in less than 46 calendar days; 3) the recovery from bear market lows has historically taken an average of 19 months, but just seven months if not accompanied by recession; and 4) every bear market throughout history has eventually been followed by a new all-time high, and this one could be no different.

Is it Time to Consider More Bonds?

Core bond investors have experienced the worst start to a year ever. However tough this year has been so far (and it has been very tough), the strategists believe the set-up for potential returns has improved meaningfully and that the value proposition for core bonds remains. Liquidity, equity diversification, and total returns are all valuable properties core bonds can bring to diversified portfolios—and each of those value propositions have improved recently. And while the relative attractiveness of equities over fixed income was undeniable when interest rates were hovering around all-time lows, now that interest rates have recently moved higher, the relative attractiveness between the two broad asset classes is much more balanced. So with yields on most fixed income markets moving sharply higher, now could be a good time to revisit fixed income markets.

What to Watch This Week

Key events to watch this week include the Fed minutes from its May 4 policy meeting where investors will be watching for commentary on the global supply chain glut. Markets will also take cues from Friday’s inflation data—the personal consumption expenditure deflator—that the Fed watches closely and may provide clues as to whether the U.S. economy will experience a growth scare or recession. Finally, earnings season winds down this week. Results from retailers will be closely scrutinized following last week’s disappointing results from Target and Walmart.

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

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