November 09, 2022
Market Snapshot: Equity Markets Rebound After Sharp Declines
- The S&P 500 fell more than 20% over the second and third quarters. Such a large decline in a six-month period is rare, with only 11 such observations since 1946. In five of these cases, the S&P 500 actually declined more than 30% before rapidly reversing.
- Equity markets that have dropped by more than 20% in such a short period of time have historically rebounded with a 100% positive frequency with an average return of about 30% in the subsequent 12 months. An average bounceback would more than offset the equity losses over the prior six-month period.
- While many asset allocators have been de-risking based on economic uncertainty, investors should also factor these oversold conditions into their near-term return expectations. Our long-term studies indicate that, excluding the most expensive quintile of stocks, the rest of the S&P 500 is trading near the bottom decile of its historical range on a price-to-earnings basis (11.7 times next 12 months’ earnings), and has rarely been so cheap outside of recessionary periods. We continue to prefer active strategies that underweight the most expensive quintile relative to passive strategies with exposure to that quintile.
The views expressed represent the opinions of certain GIM portfolio managers as of November 9, 2022, and are not intended as a recommendation of any security, sector or product, and any security identified herein may or may not have been bought, held and/or sold by GIM-managed portfolios. Any opinions or projections herein are based on information available at the time of publication and may change thereafter. Information obtained from third-party sources is assumed to be reliable, but accuracy is not guaranteed. Future developments (including performance) may differ materially from expectations and projections noted herein due to various risks and uncertainties and changes in underlying assumptions.