As I was browsing through Twitter the other day, I came across an interesting statistic.
According to one popular analyst, Charlie Bilello, historical returns show that this is the second-worst start to a year for the S&P 500 index.
The only other time the S&P dropped more during the first 116 trading days of the year?
1932… Right in the middle of the Great Depression.
Of course, I’m not calling for another depression.
But I thought this data was so interesting that I did a bit more analysis, and I want to share it with you today…
Below is the table showing some of the S&P’s worst performances from 1928 through 2022.
One of the first things I noticed is what an outlier the 1932 decline really was.
It’s been painful dealing with a drop of just 20%… Can you imagine how you’d handle a 40% drawdown in only about six months?
I suppose we went through something similar during the pandemic panic, but things turned around so quickly in 2020 that it didn’t even make it on the list!
Ready to Rebound?
The next thing I take from this table is that out of the 15 years shown in the data set, nine of them resulted in the S&P 500 rallying through the remainder of the year. Those are pretty good odds.
I then tallied up years with positive returns through year-end. Among those nine years, the average positive return through the remainder of the year was 17.7%.
For the five years that showed a negative return through the remainder of the year, the average loss was 19.6%.
However, excluding the years surrounding the Great Depression (1932 & 1937), the average negative return for the remainder of the year was a loss of just 8.7%.
Among all years, the average return for the remainder of the year was 4.4%.
Now, just because the S&P rebounded during the second half of some of the years doesn’t mean that those full years ended in positive territory. Most of them did not.
In fact, among the nine that rebounded in the second half, only four of them were strong enough to bring the index back into the green for the full year.
Positive full years (including 1970) had an average return of 6.5%, while negative full years had an average return of -20.7%.
But among all years, the average return was a loss of just 11.9%.
What to Expect
Of course, no one really wants to see that this year…
But the reality is that the data in this table paint a much more mild picture of what to expect going forward than what we’re getting from the mainstream financial press.
To me, what the data show is that we should expect a rebound through the end of the year, but it might not be like the V-shaped reversal we saw back in 2020.
Instead, the estimated rebound should be somewhere in the mid single-digit percentage range.
And on the other hand, rather than waiting around for another Great Depression-style crash, we should expect a more reasonable drawdown for the full year, somewhere in the low double-digit percentage range.
Waiting for the Bottom
So, stocks are already showing that a potential short-term bottoming process may be underway.
But unless we start to see massive buying by institutions, we won’t know for sure that the real bottom is in.
I’m talking about hedge funds, pension funds, endowments and other trillion-dollar organizations that are eventually going to start scooping up stocks at value levels.
And when they put their money to work, following their lead can pay off big time.
This is exactly what I focus on in my premium Stealth Trades research service.
Embrace the surge,
Editor, Stock Surge Daily