Good Markets Often Follow Bad Ones

Chart of the Week: Good Markets Often Follow Bad Ones

When stock prices are down, it sometimes feels like they’ll never rebound. But history tells us that bad times in the stock market are eventually followed by better times.

Last year was one of those “bad times” for stocks. The S&P 500 index fell 19.4%—that’s not including dividends. It was the index’s 18th negative calendar year since its inception 65 years ago. Its first full calendar year was 1958, and since then the S&P 500 has posted gains in seven out of 10 years.

I went back and looked at how the S&P performed after each of its 17 prior negative calendar years. Not only did the index make gains in all but three of the following years, but the average return was 12% (or 19% if you look at the median return). And that’s not counting reinvested dividends.

In other words, it’s no guarantee, but bad years in the market are typically followed by good years.

Note: Chart shows calendar years when the S&P 500 index declined in price and the performance of the index the following year from 1958 through 2022. Sources: S&P Global, Adviser.

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Chart of the WeekJeff DeMasoS&P 500stock market