History of 'near' bear markets bodes well for this current stock comeback

Bespoke Investment indicates the S&P 500's recent recovery from a near bear market decline of 18.9% in April is historically bullish, with the index rising an average of 13.4% in the year following similar instances since World War II. The firm notes that in all six prior instances the index was higher one year later. However, escalating geopolitical tensions and global trade uncertainty may pose challenges to further gains.

Analysis

Bespoke Investment highlights a historically bullish signal for the S&P 500, stemming from its recent recovery from a "near" bear market, defined as an 18.5% to 19.99% decline on a closing basis. The benchmark experienced its seventh such event since World War II earlier this year, with an 18.9% drop at its April low. Following this low on April 8, the S&P 500 rallied 21.3% in just 45 trading days, positioning it merely 2% below its February peak. Historical data from the prior six instances indicates the index was higher one year later in every case, posting an average gain of 13.4% and a median gain of 15%. The range of these one-year post-low rallies varied from a 3.7% gain after the March 1978 low to a 22% surge following the August 1998 low. However, the current outlook is tempered by escalating geopolitical tensions, specifically the conflict between Israel and Iran, and persistent global trade uncertainty, which could present headwinds to further market appreciation.

Key Decisions for Investors

• Investors should note the strong historical precedent for positive S&P 500 performance in the year following a 'near' bear market recovery, suggesting a potentially favorable environment for equities.
• Prudent risk management dictates closely monitoring geopolitical developments, particularly the Israel-Iran conflict, and global trade uncertainties, as these factors could impede further market gains despite historical trends.
• Consider maintaining a constructive outlook on the S&P 500, balanced with an awareness of current risks that could differentiate the present recovery from past instances.