Bear markets often last an uncomfortably long time

NAfter the price losses in the first half of 2022, the most important stock indices such as the S&P 500, Nikkei 225, Euro Stoxx 50 and Dax will also tend to deal with the negative factors (high inflation rates, geopolitical challenges, more restrictive monetary policy of many central banks, rising bond yields, declining economic momentum) in the second half of 2022 etc.) have to fight. This will lead to reduced profit expectations for many companies and also cause valuation levels to fall further. On the one hand, the overall technical situation for the S&P 500 indicates that the bear market will continue. On the other hand, however, some technical aspects such as the high level of pessimism and the increased cash holdings among many market participants signal a weakening of the bear market momentum. Against the background of the weak currencies (euro and yen), the Dax and the Nikkei 225 have a moderate relative strength in the index comparison, not least because of the high proportion of currency profiteers. This should remain in place for the coming months. Against the background of the current negative factors, the composition of the Euro Stoxx 50 ensures relative weakness, although new bear lows in this index for the second half of 2022 should not come as a surprise.

From a technical perspective, the S&P 500 is considered bearish when the index is more than 20 percent off its (all-time) high. Looking at the bear markets since 1945, two key aspects emerge. The bear markets lasted about 450 calendar days on average, with the bear market bottom only being identified with a time lag. This average does not take into account the so-called event-driven bear markets, i.e. very short but violent bear markets that are triggered by an “external shock”, such as the corona pandemic. Bear markets combined with tight US monetary policy and a US economic slowdown are dragging on. On average, these bear moves have sent the S&P 500 (since 1945) prices down about 34 percent. This means that when the index enters the bear market (loss of at least 20 percent), the majority of the price losses are usually already incorporated into the index.

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