A couple of weeks ago, the S&P 500 officially entered its latest ‘Bull’ market. For the sake of clarity, a ‘Bull’ market is the term commonly used when a stock market rises by 20% from its most recent low point.
On this occasion, the S&P 500 has bounced back by 20% since October 2022, when markets reached the bottom of this latest temporary decline.
The chart below shows the ‘bull’ periods (growth cycles) and ‘bear’ periods (temporary declines) of the S&P 500 Index since the 1950s:
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- The growth during ‘Bull’ markets (shown in blue) has drastically exceeded any losses experienced during periods of decline (the ‘Bear’ markets shown in red).
- Since 1950, the average ‘Bear’ market has fallen -34%, compared to the average ‘Bull’ market returning +167%.
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Why should you care?
You may find this information surprising, given all the negative headlines over the past 8 months. As we regularly remind you, stock markets are erratic and impossible to predict with any consistency in the short term.
Human behaviour is the number one reason that investors experience poor returns. Some common mistakes are:
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- Being influenced by current negative news stories rather than focusing on the long-term positive trends.
- Pausing or reducing investment contributions during a downturn while “waiting for the market to settle down”.
- Holding too much cash.
- Changing investment strategy or selling during temporary market declines.
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If you fell victim to any of these, you probably missed out on this recent surge in investment growth.
The first step to being a successful investor is to accept that stock markets are unpredictable. The only reliable way of capturing the returns available to you is to both stay invested and continue investing through all market cycles.
