The Bear Market Could Go On For Longer If History Proves Right, But 1 Sector Is Bucking The Downturn

Zinger Key Points
  • It’s been 151 days the S&P 500 officially dipped into bear territory; the average historical bear market lasts 289 days.
  • The oil and gas sector has gained 64% in 2022 while most other sectors struggle.

The S&P 500 is showing a recovery in November, but experts think it’s still too early to tell if October’s lows were this cycle’s rough bottom: the situation hasn’t improved enough to consider the equity markets in bull territory just yet.

The Three Major Indexes

The S&P 500’s last peak happened on Jan. 3 of this year, hitting a record high of 4,818.62 in January 2022.

It’s been a slow and tortuous ride down to the last low point of 3491.58 on Oct. 13.

While the index has recovered slightly since its lowest point of 2022 — closing this week at 3,992.00 — the regained territory is not enough to declare the market back in a bull cycle. So far this month, the S&P 500 is up almost 10% from November's low.

The Dow Jones Industrial Average shows less volatility and sparks more hope.

The index tracking the 30 most important companies in the country climbed by 3.99% last week. Reduced exposure to the struggling (and volatile) tech sector has allowed the index to enjoy better results than the S&P 500 in recent months.

The Dow has almost recovered the semester’s losses and is now getting close to last quarter's peak of 34,000 points, up over 15% since October’s low.

The Dow has had a much better year than the S&P 500, down 7.6% this year, against 17% for the broad market index.

The Nasdaq Composite is the worst of the lot, largely weighed down by the index's association with companies in the tech sector. It's down almost 30% since the start of the year, but has recovered over 7% in the last month alone.

Lessons From History

There have been 26 bear markets since 1928 if we look at the S&P 500 as a proper gauge for the entire market.

The average bear market has lasted 289 days and resulted in the market down an average of 35%. 

It’s been 312 days since the market started to decline on Jan. 3, 2022, but it’s only been 151 days since June 13, 2022, which is when the S&P 500 officially entered bear territory.

So, looking at the average bear cycle, we could still be only half-way through.

Recent history has some of the most extreme examples. The economy went into full bear mode in the blink of an eye when the world learned of the consequences that the COVID-19 pandemic, but that bear cycle only lasted 33 days — the shortest one in the history of the index.

20 years earlier, the dot-com bubble crash took the markets into bear territory for 929 days, or two and a half years.

However, it’s very rare to have two years in a row of 20% losses. According to John Davi, founder and chief investment officer at Astoria Portfolio Advisors, the great crash of 1929 was the last to see that level of bearishness.

While living through a bear market can be tough to handle, investors are best advised by experts to avoid selling at the lows. Over 70% of the time since the 1920s the S&P 500 has been higher on a year-over-year basis.

Many Of The Winners Of 2021 Are The Losers Of This Bear Market

“What goes up must come down” appears to be applicable to more than just physics.

Looking at the five biggest winners of 2021, we can see how this bear market has become a bear trap for some of the best-performing stocks of last year, but not all of them fell under the bear spell.

GameStop Corp. GME was an odd duck as far as investing in single companies goes. The meme stock enjoyed an unusual situation by which its price rose by 815% in 2021. Since January, the stock has been down 30%.

Upstart Holdings Inc. UPST was up 321% in 2021, but the consumer lending company has had a rough time adapting to high-interest rates, high inflation and lower spending. The company is down 84% this year.

Moderna’s MRNA successful development of a COVID-19 vaccine drove the company’s shares to gain 193% in value in 2021. Yet the company has lost 27% of its value since January.

Fighting The Bear Vibes With “Good Energy”

Devon Energy Corp. DVN is one of a few examples of top-performing companies from 2021 that continued its success into 2022. The company was fourth among top gainers in 2021, giving investors annual returns of 175%. This year, the energy crisis propelled by the Russia/Ukraine conflict has resulted in record yields for companies in the oil and gas sector. Devon shares are up 58% this year.

Continental Resources Inc. CLR is a similar example. The Oklahoma-based oil and gas exploration and production company gave returns of 167% in 2021 and is up 60% already since the start of the year.

The energy sector has been one of the best performing in 2022. The same macroeconomic events that are factors in the market downturn happen to be good news for companies selling fossil fuels. The Energy Select Sector SPDR Fund XLE is up 64% in 2022. 

Here are this year's five best-performing stocks in the oil and gas sector:

  • Occidental Petroleum Corp. OXY, up 159%.
  • Marathon Oil Corp. MRO, up 95%.
  • EQT Corp. EQT, up 92%.
  • Hess Corp HES, up 89%.
  • Exxon Mobil Corp. XOM, up 79%.

Photo by NASA on Unsplash and Katy Thompson from Pixabay.

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