“What the Last 100 Years Can Teach Us“

While the saying is true that history doesn’t always repeat itself, it does tend to rhyme and looking back at the historical performance of the S&P 500 from the last 100 years can provide some helpful context when we are in the midst of a market downturn.  At the time of writing this article, the S&P 500 is down approximately 21% so far this year.  It can be easy to extrapolate what has occurred over the last 9 months in the market and feel like there is no end in sight or begin to make irrational decisions based on short-term history.  However, it might be helpful to look at how markets have performed historically and more specifically how they have tended to respond following a 20% correction like we’ve seen this year.

Historical Performance

We pulled daily data from the S&P 500 for the last ~100 years (from 1928 to 2022) and looked at what the average 12 month and 18-month returns had been during that time.  Perhaps not surprisingly, the average return over a 12-month period for the S&P 500 has been 8.15% assuming no dividends were reinvested.  Over an 18-month period the average return has been 12.5% (or about 8.3% annualized).  None of this is groundbreaking information, and likely things you have heard before, but it bears repeating that we are in a below average market so far in 2022 which begs the question of what types of averages could we expect going forward?

A Reason for Forward Looking Optimism

All of the averages noted above certainly sound promising, but it can still be hard to believe it will happen again when there seems to be a lot of doom and gloom around.  To dig even further, we then analyzed how the market has historically performed over a 18-month period AFTER experiencing a 20% decline.  In other words, how has the market historically recovered from a bear market scenario in the past?  The answer, an average of 11.58% over the next year and a half. 

Will the returns going forward equal the returns we have seen on average over the past 100 years?  Maybe not, but there is certainly the weighty evidence of history to lean on and reminder ourselves that a long-term outlook allows us to stay focused and invested in the short-term.