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Markets are in dire straits, but history shows hope for the horizon

New York (CNN Business)S&P 500 (SBSPX)is preparing to conclude the worst first half in over 60 years. S&P Dow Jones Index.

This year's market has been caught up in many unfavorable headwinds, including the Russian war in Ukraine, the blockade of Covid-19 in China, the surge in inflation, and the aggressive Fed rate hikes. rice field. All of these factors have fueled investors' concerns about a recession, causing a surge to the exit. The S&P 500 has lost a total of $ 8.2 trillion since the beginning of the year. The

index is on track for the worst June since 2008 and the worst quarter since 1970, with all 11 sectors in the red.

In short, things look miserable. But that doesn't mean they stay that way.

Correlation and causality

The good news is that the market is constantly recovering after bad performance ... Ultimately for.

At least historically, there is little correlation between the performance of the S&P500 in the first half and the second half of the year. According to data from the S&P Dow Jones Index, the S&P 500 fell 21% in the first half of 1970, but rose 27% in the second half.

The bad news is that if the market drops so much, the next quarter will not always be great. The S&P 500 has fallen by more than 5% in the last three worst starts of the year, down 6.8%, 2.2% and 2.1% in the third quarter, respectively, CFRA Research said.

Defeat the bear

But timing is important, Stovall added. It took only 161 calendar days for the market to fall from its peak on January 3rd to the current bear market. This is much faster than the normal 245 day average time frame.

And fast bears are usually not as big and scary as slow and bulky bears. In the past, markets that took less than 245 days from peak to bear were measured at a down threshold of 20% and recorded losses of less than 27%. It takes time to drop 33% post loss.

US stocks are usually strong, at least in the long run, after entering the bear market. In the year following the bear territory, stocks have risen by an average of nearly 15% and the median has risen another 23.8%, according to data from LPL Financial's chief market strategist, Ryan Detrick.

It's not uncommon for stocks to stage a rapid recovery from the bear market's lows, Detrick said. The average bear market takes about 19 months to recover all losses, but if the S&P 500 drops below 25%, it takes an average of 7 months to recover. Recovery is even faster these days. The last three bear markets have only taken four to five months to recover their losses.

Presidential Feelings

The presidential cycle also has a historic impact on the market, Stover said. And that's good news for today's investors.

According to CFRA analysis from 1944 to today, the average S&P 500 returns in the second and third quarters of the president's second year in office are negative, but the market is in the fourth quarter. Recovered by, with an average increase of 6.4%.

In the third year of the president's term, on average, he performed by far the best, with the S&P 500 growing by about 16%. In

, this is the very environmentally friendly 2023.