• Alex Kreis

Investing in a Bear Market



All we’ve heard lately is bad news about the market – downward trends, looming recession, stunted employment growth, etc. But is it all bad news? Not according to some experts who see this decline as a potential entry point for investors. Don’t believe them? Market experts looking to history may ease your doubts.


According to the Stock Trader’s Almanac, since 1946, the S&P 500 has gained an average of 28.2% over the following five quarters after sinking for the first three of a calendar year, with no losses. In the worst 20 nine-month periods of the last half century, all but one the indices have logged a positive return in the one-year period following with an average return of 12%.


Even more relevant, investors have often come out of hiding in the month of October with the S&P 500 heading upwards again in data from 12 post-war bear markets. Keep in mind, however, that no trend is perfect. Still, October has been the highest-returning month in the S&P 500 on average since 1950.


Another historical trend pointed at deals with midterm season. Amongst typical economic shakiness, there usually comes high average returns. A great example is with the S&P 500 sporting an average return of 20% in the three quarters beginning in October of a midterm election year. This is what some people refer to as a “fourth-quarter rally”.


While some might still be skeptical, there is no doubt that if you believe the market will continue to rise over the decades you plan to invest, it is a great time to buy. Financial professionals would recommend investing now if you can and more importantly, investing regularly. A recommended strategy to achieve this is dollar-cost averaging, allowing you to buy more shares when prices are low and fewer when they’re high.


If you are already investing, there is a silver lining. Bear markets tend to be short, and it’s important for investors to keep their cool. While selling now could feel like the right thing to do, it would most likely be a mistake. This is because once you are out, you must figure out the right time to get back in to turn a profit. Timing the market is immensely difficult and most, if not all people fail at this endeavor.



Sources:

1. https://www.cnbc.com/2022/10/14/now-is-a-sweet-spot-for-stocks-says-market-historian.html

2. https://www.cnbc.com/2022/10/04/why-its-smart-to-keep-investing-during-a-garden-variety-bear-market.html


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