“The last leg of a bull market always ends in hysteria; the last leg of a bear market always ends in a panic.” – Jim Rogers, investor
Some say the recent rally is fool’s gold.
Some say the recent rally is the start of a new up trend.
Source: Koyfin, Pure Portfolios
The above chart shows the S&P 500’s journey in 2022. Does mid-June mark the low or are we in for another drawdown?
The conundrum got us thinking….
What is the average intra-year drawdown for the S&P 500?
After experiencing a drawdown, how often does the S&P 500 finish the year higher?
We evaluate intra-year declines and annual returns since 1980.
Source: J.P. Morgan Asset Management, FactSet, S&P
The above graph shows S&P intra-year drawdowns (red dots) vs. calendar year returns (gray bars) going back to 1980. The average intra-year drop for the S&P 500 is -14%. Amazingly, the S&P went on to finish the year in positive territory 32 out of 42 years!
In 2022, the S&P’s drawdown sits at -24%. As of this writing (8/17), the S&P is down -10.32% year-to-date.
Obviously, past performance cannot give insight into future results. However, there are some interesting trends…
- Negative intra-year returns are quite normal.
- Uninterrupted gains are abnormal.
- Investors who are patient have been rewarded.
- Modest intra-year drawdowns of -10% or less tend to finish the year positive (with the exception of 1994).
- Drawdowns over -15% tend to be a bit more mixed. Some finished the year higher, some lower.
There have been some huge intra-year swings…
1985: -8% drawdown, calendar year return of +26%
1987: -34% drawdown, calendar year return of +2%
1989: -8% drawdown, calendar year return of +27%
None of these come close to 2020. -34% drawdown, calendar year return of +16%!
What does this mean for the remainder of 2022?
No one can be sure, however…
- Just because the market takes a beating doesn’t mean you should throw in the towel.
- History has rewarded investors who haven’t panicked and lost their minds.
For more Pure content on reversals, market bottoms, and recessions, see…
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