Giving Back the Gains: Lessons from Past Cycles

Almost a year and a half of stock market gains have been erased, taking the S&P 500's 600-day return from over 80% down to less than 1%. As the recent SentimentEdge report highlights, similar cycles in the past have shown some tendencies that may provide clues for today's market.

Key Takeaways

• Over a 600-day period, the S&P 500 gained more than 80% and then gave back almost all of it. This has happened 12 other times since 1928.

• In the chart below highlighted in green, you can see that after these cycles, the market tended to rebound over the next couple of months. In 11 out of the 12 cases, the S&P was higher two months later, though a few did see further losses down the road.

• In the long term, these cycles triggered around the midpoint of ongoing bear markets three times - in 1946, 1973, and 2002. So this is something to be cautious about as it could be signaling a tough road ahead.

• Defensive sectors like Consumer Staples and Healthcare held up well after these signals, along with Financials, Energy, and Industrials.

What It Could Mean

Giving back substantial gains understandably hurts investor confidence. However, statistically, the market has been more likely to rebound after these cycles rather than continue falling.

There are never guarantees, but the historical tendencies suggest the recent weakness may present a buying opportunity, especially in defensive areas that have held up better. Of course, risks remain if economic weakness continues.

Talk with you all soon!

Shean

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.