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3 Reasons the Market's 'So Bad It Is Good': LPL Strategist

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What You Need to Know

  • The S&P 500 is having one of its worst years so far, but history suggests the second half could be brighter.
  • In past years when the index was down at least 15% midyear, it always rallied over the next six months.
  • Market rebounds also typically follow when the S&P 500 sees big declines in back-to-back weeks.

Market bulls shouldn’t give up hope for 2022 stock performance despite this year’s rough first half, according to LPL Financial chief market strategist Ryan Detrick, who cited three promising signs for investors.

First, historical trends suggest the market may rebound in the second half after the year’s rocky start for investors, he said in a commentary Wednesday titled “3 Reasons It Is So Bad It Is Good.”

“The S&P 500 index is down 21% for the year, which would be the worst first half to any year since 1970,” Detrick said. “As bad as that has been for investors, the good news is previous years that were down at least 15% at the midway point to the year saw the final six months higher every single time, with an average return of nearly 24%.” 

Detrick looked back 90 years to show that in years when the S&P 500 was sharply down at the end of June, stocks rallied in the second half, although they didn’t typically wipe away all the earlier losses.

In 1932, the index was down 45.4% on June 30, then achieved 56.2% returns for the rest of the year. In 1962, the S&P 500 was off 23.5% at midyear, then rallied by 15.3% in the subsequent six months, Detrick’s chart showed.

While there are no guarantees, a bullish move is possible this year, according to Detrick.

Along the same lines, the strategist pointed to historical data showing that markets typically snap back in the two quarters after a horrible quarter, with performance improving even more a full year after the down period.

Finally, Detrick sees a bullish sign in the S&P 500’s falling more than 5% in back-to-back weeks this month. In the past when the index fell at least that much in two straight weeks, it rose an average 28% by a year later and slid only one time, after a two-week fall in 1987, he said.

His data noted that the index lost 22.5% over two weeks in March 2020 as the coronavirus pandemic set in and had logged a 71% return a year later.