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Bear Market Bottoms -What to Expect Next?

[llerrad5]

Bear Market Bottoms: What To Expect Next?

 

In the event you haven't heard, I called the bottom in the S&P 500 last week.  I said earlier in the week that I'd select last week's low as my "bottom".  That was 3636.87.  Will that be the ultimate bottom?  Well, I don't know for sure, but I'm seeing money rotate the way it does at bottoms - back towards more growth-oriented and aggressive areas of the market.  It's certainly no guarantee, but as I explain often, it's about managing risk.  

 

At the beginning of 2022, the clear risk to me was being long.  I said early in this decline that we could see 3500 during what I believed would morph into a cyclical bear market.  I believe that call was a very timely one.  I now believe the major risk is remaining short or in cash.  If I'm right about the bottom, I want to show you, based on history, why this bottom call is so important.  Here is how the S&P 500 has performed AFTER the bottom of every CYCLICAL bear market since 1950:

 

When we do bottom, the next year historically has been EXTREMELY BULLISH.  The worst 1-year return after a major cyclical bear market bottom prints is +29.59% (1990).  The best 1-year return is +78.41% (2020 pandemic).  The average 1-year return is +42.59%.  Humor me here for a second.  If I'm right about the bottom, the projection of the S&P 500 1 year later on June 17, 2023 would be:

 

     * 4713 if the S&P 500 rises 29.59% (worst 1-year return)

     * 5186 if the S&P 500 rises 42.49% (average 1-year return)

     * 6489 if the S&P 500 rises 78.41% (best 1-year return)

 

Those numbers are one big reason why I believe the biggest risk now lies with the shorts or those in cash.  We've experienced a brutal 5 1/2 month period and the S&P 500 has discounted a lot of bad "stuff" into the current price.  Be careful believing that it must continue going lower, just because the news is bad.  The stock market bottoms before news turns positive.