As the saying goes “history doesn’t repeat itself, but it often rhymes’”. Nowhere is this more apparent than in the world of financial markets. While we don’t attempt to predict the future, we do analyze the present and study market history to better understand the current environment.

Another October Bottom?
A prime example of history repeating itself is the “October Bottom” trend. On an average year, the S&P 500 tends to hit its lowest point around October 27th. Case in point: this year, the market has surged by almost 10% since that date. Followers of this blog would have anticipated this after reading my blog post here

Navigating September’s Challenges
Similarly, September has consistently posed challenges in recent years. In the last four years alone, the month has seen an average decline of 5%, only to be followed by an impressive 9% average return in the fourth quarter. Examining the historical data, a pattern emerges—the third quarter tends to be the toughest, while the fourth quarter shines as the most favorable.

Embracing the Inevitable
One consistent thing in the financial market is the occurrence of declines. While the reasons for these declines can be sparked by economic changes, geopolitical events, or unforeseen circumstances, declines are an inherent part of market dynamics. 

U.S. stock market typically declines by at least:

  • 10% every other year
  • 30% every 4-5 years
  • 50%+ once a generation

Acknowledging this reality becomes a key aspect of navigating the unpredictable nature of financial markets.

Bull Markets Following Bear Markets
History has shown us that bull markets tend to follow bear markets. Understanding this pattern can instill confidence in investors during challenging times. It serves as a reminder that, despite temporary setbacks, markets have historically demonstrated resilience and an ability to rebound.

US Stock Returns Following Bear Markets

Stocks Outshine Conservative Investments in the Long Run
In the delicate balance between risk and reward, historical data shows that over the long term, stocks have outperformed more conservative investments. While the appeal of secure and stable investments such as CDs, bonds, and cash may be tempting, those with the goal of long-term growth often find stocks to be the first choice. 

Growth of $100

Bottom Line
Staying calm in market ups and downs is all about understanding the data, and that’s what I specialize in. Historical data doesn’t have an agenda; it’s the cold hard truth, free from any biases. By learning from it, we may not be able to predict the future perfectly, but we do get a good sense of what to expect next. 

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor

Disclaimers / Sources:

Growth of $100 from George Maroudas. Data from as of 9/26/2022

US Stock Returns Following Bear Markets from George Maroudas. Data from YCharts as of 11/16/23. 

Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.