What Happens After a Bad 6 Months

Mike Earl, CFP^®, CPWA^®

The broad US stock market just experienced its 11th-worst 6-month period since 1971 (as measured by the Wilshire 5000 Index, which currently has 3,660 constituent stocks*).

It’s always possible that markets get worse before they get better.

Yet, history has shown that stocks tend to do well following a [very] bad stretch. Captain Obvious here, I know. But it’s still reassuring to see the historical evidence presented in a table:

In all but one of the prior 19 worst periods, stocks were higher 12 months later (that's 95% of the time). Stocks may not regain their prior highs within 12 months, but this data shows we have a high probability of seeing better returns when looking one year out (and certainly within 3 years).

Could this time be different? Yes, it could be. But the bears have been making that claim for every downturn we have seen since The Great Recession of 2007-2009. 

We’ll take the other side of that bet and remain bullish.

*Via The Street: “The Wilshire 5,000 is so named because, at its inception in 1974, it included around 5,000 stocks. By the end of the 20th century, it grew to include over 7,500 before shrinking back to under 5,000 once again.” As of March 31, 2022, the index included 3,660 stocks.