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Chart of the Week

Weekly chart using economic data to address timely market topics from the Wells Fargo Investment Institute Global Investment Strategy team.

May 31, 2023

Putting the bear market into context

The chart plots the last five bear markets — from 1990 through the current bear market. It plots the number of trading days for the S&P 500 Index to reach the bottom of the bear market before turning toward recovery. The bear market from 2000 to 2002 took 641 trading days to reach bottom, the longest of the past five bear markets, while the 2020 bear market took just 16 days, the shortest. The chart shows that the current bear market started January 3, 2022, and has lasted more than 300 trading days. Through April 30, 2023, it was approaching the length of the 2007-2009 bear market, which took 355 trading days to bottom.Sources: Bloomberg and Wells Fargo Investment Institute. Data as of April 30, 2023. Current bear market data is as of April 30, 2023, with trough date of October 12, 2022. Analysis uses S&P 500 Index price returns. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Excerpted from Economic and Market Strategy Update (May 15, 2023)

S&P 500 Index declines in recent bear markets

Bear markets typically take time to find their bottom. The 2020 bear market, spurred by the coronavirus pandemic, saw the fastest-ever decline into a bear market (just 16 trading days) for the S&P 500 Index, and it also saw the quickest recovery (126 trading days) to the prior peak.

The current bear market, which started on January 2, 2022, has followed a different trajectory. This bear market took 111 trading days to reach the -20% threshold to be considered a bear market, and we expect the process for bottoming and recovery to take more time. Consider this for perspective: The 2000-2002 bear market (dashed purple line) took 641 trading days to bottom and 1,809 trading days to recover to its prior peak, while the 2007-2009 bear market (gold line) took 355 days to bottom and 1,378 days to recover to recover to its prior peak.

What it may mean for investors

Since early 2022, we have maintained a focus on quality in U.S. equity markets, and as the economy weakens, our preference for quality and more defensive positioning in portfolios remains in effect. Once we believe the recession appears to be fully priced in to market valuations, however, we likely will begin to position for the early cycle recovery we see emerging in 2024.

Risk Considerations

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors.

General Disclosures

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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