The S&P 500 declined sharply last year, but historical data says the stock market could rebound in 2023.
In 1926, the Composite Stock Index was created to measure market trends. Initially, it tracked the performance of 90 companies, but it was updated to include 500 companies in 1957, and thus the S&P 500 (^GSPC -1.20%) was born. While its constituents have changed over the years, the S&P 500 still includes a blend of large-cap value stocks and growth stocks that span all 11 market sectors. For that reason, the diversified index is often viewed as a benchmark for the entire U.S. stock market.
Last year, economic uncertainty surrounding red-hot inflation and rapidly rising interest rates caused the S&P 500 to fall 19.4%, marking its fourth-worst performancein history.
Here's what investors should know.
Image source: Getty Images.
History says the stock market could rebound in 2023
Since 1957, the S&P 500 has only fallen more sharply than 19.4% in three years: 1974, 2002, and 2008. Each of those downturns was precipitated by major economic headwinds.
In 1974, gasoline shortages and double-digit inflation ratescaused the S&P 500 to plunge 29.7%. In 2002, the fallout from frenzied investments in internet technology companies and the subsequent implosion of the dot-com bubble caused the S&P 500 to drop 23.4%. And in 2008, the collapse of the U.S. housing market and the subsequent global financial crisis caused the S&P 500 to fall 38.5%.
What happened next? In all three cases, the broad-based index staged a spectacular recovery in the year immediately following its meltdown. In fact, the S&P 500 produced an average return of 27.1% in 1975, 2003, and 2009. The details are provided in the chart below.
Year | S&P 500 Return |
|---|
1974 | (29.7%) |
1975 | 31.5% |
2002 | (23.4%) |
2003 | 26.4% |
2008 | (38.5%) |
2009 | 23.5% |
Data source: Yardeni.
There is another interesting fact buried in the data. Since its inception in 1957, there have only been twooccasions in which the S&P 500 fell for two (or more) consecutive years. The index posted back-to-back declines in 1973 and 1974, and it fell for three consecutive years between 2000 and 2002.
The former is particularly noteworthy because inflation started trending upward in early 1973, and it peaked at 12.2% in November 1974. The S&P 500 then mounted a recovery in 1975. Something similar has played out over the past two years. Inflation began rising in early 2021, and it peaked at 9.1% in June 2022. That trend, assuming it continues, could trigger a bull market rally in 2023.
As a caveat, that is little more than speculation. The similarities between 1974 and 2022 only go so far, and every stock market downturn in the past was caused by its own unique confluence of world events. More importantly, past performance is never a guarantee of future returns, and not even the best analysts on Wall Street can predict the future.
However, the S&P 500 has undeniably rebounded from every past downturn, and there is no reason to believe this one will be any different.
The smartest thing investors can do right now
The best way to capitalize on the stock market downturn is to invest on a regular basis. In the last two decades, more than 80% of the S&P 500 index's best days occurred during a bear market or the first two months of a bull market (i.e., before it was clear the previous bear market had ended) and missing even a few of those days can be a very costly mistake.
Of course, not all beaten-down stocks will regain their previous highs. But there are plenty of good businesses in growing industries -- like Shopify in e-commerce, Amazon in cloud computing, and Tesla in electric cars -- and many are trading at heavily discounted prices.
Alternatively, an S&P 500 index fund is a great option for investors looking to do a little less work. In fact, as my colleague Katie Brockman discusses, Warren Buffett owns two S&P 500 index funds through Berkshire Hathaway, and he has often said an S&P 500 index fund is the best option for most investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon.com, Shopify, and Tesla. The Motley Fool has positions in and recommends Amazon.com, Berkshire Hathaway, Shopify, and Tesla. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify, long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $1,160 calls on Shopify, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.
FAQs
December 31, 2008: For the year, S&P 500 falls 38.49 percent, its worst yearly percentage loss.
What is the prediction for the S&P 500? ›
The consensus 12-month analyst price target for the S&P 500 is 5,614, representing about 6.8% upside from current levels.
How many years has the S&P 500 lost money? ›
In the 94 years covered by Damodaran's data, there were 25 years that saw the value of S&P 500 investments drop. That's a roughly 1-in-4 chance of losing money in stocks in any given year.
What has the S&P returned over the past 10 years? ›
Stock Market Average Yearly Return for the Last 10 Years
The historical average yearly return of the S&P 500 is 12.68% over the last 10 years, as of the end of February 2024. This assumes dividends are reinvested. Adjusted for inflation, the 10-year average stock market return (including dividends) is 9.56%.
What was the worst period in stock market history? ›
Also called the Great Crash or the Wall Street Crash, leading to the Great Depression. Lasting around a year, this share price fall was triggered by an economic recession within the Great Depression and doubts about the effectiveness of Franklin D. Roosevelt's New Deal policy.
What is the average rate of return for the S&P 500 last 10 years? ›
Basic Info. S&P 500 10 Year Return is at 180.6%, compared to 174.1% last month and 161.9% last year. This is higher than the long term average of 114.4%.
Is now a good time to invest in the S&P 500? ›
The S&P 500 (^GSPC 0.02%) has been reaching new heights, soaring by a whopping 41% from its lowest point in October 2022. This can be an exciting time for investors, many of whom have watched their portfolios plummet in value over the past several years.
What is the target price for the S&P 500 in 2024? ›
S&P 500 should end 2024 at current levels around our price target of 5,100, says BMO's Brian Belski.
What is the expected return of the stock market in the next 10 years? ›
U.S. stock returns: 2023 optimism carries forward
This heightened optimism is on par with the positive outlook in December 2021, when investors anticipated a 6% stock market return for 2022. Investor expectations for stock returns over the long run (defined as the next 10 years) rose slightly to 7.2%.
Can you lose money long term in S&P 500? ›
While there are few certainties in the financial world, there's virtually no chance that an index fund will ever lose all of its value. One reason for this is that most index funds are highly diversified. They buy and hold identical weights of each stock in an index, such as the S&P 500.
We saw in the previous section that investing in the S&P 500 has historically allowed investors to double their money about every six or seven years. Your initial $1,000 investment will grow to $2,000 by year 7, $4,000 by year 14, and $6,000 by year 18.
What was the worst 30-year return on the stock market? ›
The lowest annual return over any 30 year period going back to 1926 was 7.8%. That's what you got had you invested at the peak of the Roaring 20s boom in September 1929. You would have lost more than 80% of your investment in the ensuing crash and still made more than 850% in total over 30 years.
How much would I have earned if I invested in the S&P 500? ›
For a point of reference, the S&P 500 has a historical average annual total return of about 10%, not accounting for inflation.
What is the return of the S&P YTD in 2024? ›
So far in 2024 (YTD), the S&P 500 index has returned an average 13.00%.
What is the average stock market return over 30 years? ›
Looking at the S&P 500 for the years 1993 to mid-2023, the average stock market return for the last 30 years is 9.90% (7.22% when adjusted for inflation). Some of this success can be attributed to the dot-com boom in the late 1990s (before the bust), which resulted in high return rates for five consecutive years.
Has the S&P 500 ever had a negative year? ›
For the 94 years ended December 31, 2019, the S&P 500 Index posted positive calendar year returns 73% of the time and negative calendar year returns 27% of the time, with an average calendar year return of 21% over the positive years and -13% over the negative years. Think long term, diversification, and balance.
What is the lowest 10 year return on S&P 500? ›
The S&P 500 Index, shown in bright red, delivered its worst ten-year return of -3% a year over the ten years ending in February 2009. The best ten-year return, of 20% a year, occurred over the ten years ending in August 2000.
Has any fund beaten the S&P 500? ›
Mid- and Large-Cap Value Funds
The ETF rebalances its portfolio every quarter to the highest yielders. Energy stocks like Valero Energy are currently 23% of Pacer's portfolio, while tech is only 9%. The fund's R2 is a low 69, yet it has beaten the S&P 500 in the past five years.
Was the S&P 500 low in 2009? ›
The S&P 500 reached its 2009 low of 666 on March 6, 2009. By March 23, the index was up more than 20% from its lows. Following the aggressive government stimulus measures, U.S. GDP increased 1.5% year-over-year in the third quarter of 2009, officially ending the recession.
