Many investors believe that the equity market volatility will not be subsiding any time soon, and that even lower lows for the S&P 500 lie ahead. We can’t disagree. Should the S&P 500 slip into its 13th bear market since WWII, and its performance emulates the average for all bear markets, history says be prepared for a total price decline of more than 30% that will take an additional five months to bottom after finally falling through the 20% decline threshold.
In other words, it will take a total of 14 months to go from peak to trough. It will then take nearly two years to get back to breakeven. Also, be prepared for all sectors and sub-industries in the S&P 500 to fall in price, even though the defensive Consumer Staples, Health Care and Utilities groups in general, and the eat ‘em, smoke ‘em, and drink ‘em stocks in particular, will fall less than the market as a whole.
And if you wondered if your bonds were still worth holding onto, despite the Fed’s intention of raising short-term interest rates gradually over the coming years, just remember that intermediate-term, investment-grade bonds were the only asset class to record a positive total return during each and every major U.S. equity market decline over the past 40 years and beat the S&P 500 every time.