The Bear Market of 2022
How Does This Correction Stack Up?
By: Steven Higgins, Financial Advisor, Partner
From the first trading day of the year, 2022 has been defined by seemingly endless volatility. The markets have wrestled with stubborn inflation and a Federal Reserve that remains in a full-court-press in an effort to subdue the largest price increase in 40 years. In historic fashion, interest rates have finally risen off the floor after 13 years of lows. As policies and systems adjust to the sudden changes and the Fed reaffirms its hawkish commitment, the markets have struggled to maintain an upward direction after multiple attempts and false recoveries. Investors are certainly tiring as the length of this bear market is decidedly longer than the whipsaw corrections and recoveries over the last four years. This bear market hasn’t reached levels that are anywhere near historic in nature, but investors may be feeling fatigued as they haven’t had their bear market “fitness” tested for this many months in quite some time. For long-term investors and clients preparing for retirement, there are some bright spots and opportunities to be had, but until we see a meaningful decrease in the headline inflation figures, there’s likely more gyrations ahead. That being said, regardless of which direction the market takes over the fourth quarter and into 2023, there is a process in place to navigate the volatility and position clients to maintain their goals, fund income strategies, and seek value opportunities.
Since 1942, the S&P 500 has seen fifteen corrections of 20% or more. The average length of a correction is 339 days. The current correction, with its most recent bottom set at -25%, has lasted 273 days*. So, while this event has been tiresome, it’s important for clients to understand that we are experiencing what amounts to a normal volatility environment in the face of abnormal inflation data. The volatility will persist until the market senses a retreat in the inflation figures and subsequent stability in interest rates and it can gain a firm footing. Hang in there, we’re not even to “average” yet. As with 100% of corrections of the past, this correction will ultimately have its last day and the recovery – especially the initial stages – will be quicker than most beleaguered investors expect.
We certainly never want to tell anybody how to feel, but it would be appropriate to feel uneasy, doubtful, or worried right now. That’s okay, no “normal” people like these moments. However, we’ve been here before. In fact, we’ve been here many times. Looking forward, maybe it gets worse, maybe not, but there is an end.
The following table shows every correction in the S&P 500 that resulted in the index being down 25% or more. It’s clear that history has shown the periods following corrections of this order yield outsized returns as the market recovers and new bull markets are formed.
All the data in the world isn’t going to help anybody feel better today. However, it will support a disciplined asset allocation coupled with actionable responses to economic realities and market movement all operating in-tune with your Personal Investment Policy and personal goals. This process aims to replace emotions with discipline and move you not only through this correction but onward toward achieving your long-term objectives.
During periods of volatility such as this, we often hear something like, “your phone must be ringing off the hook, your clients must be freaking out.” Actually, that’s not the case at all. Our clients are composed and show a lot of poise in these moments. Clients are doubtlessly concerned at times but they accept that volatility is part of the historic narrative and it always will be. Our relationships with our clients is anchored by communication, discipline, and our fiduciary responsibility to always do what’s in their best interest. We’ve built Higgins & Schmidt Wealth Strategies to be a client-first firm. In that spirit, please do not hesitate to reach out to anybody on our team, we always welcome the opportunity to talk.
Data: YCharts
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial. 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. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
