History of Bear Markets: Stocks Will Soar Over the Next 6 Months

Let’s not sugarcoat things. It’s been a terrible year for stock market investors. Stocks are in the midst of their worst crash since the 2008 financial crisis. The S&P 500 is down about 25% from its highs, and retail investors are faring far worse. Recent data from JPMorgan’s (JPM) personal portfolios shows that retail investors are down almost 50% this year alone. 

It’s been an awful year for the “little guy.”

But there’s reason to believe 2023 is shaping up to be an awesome year.

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Specifically, there are two big reasons why investors may want to start phasing into this bear market. And both revolve around the idea that history tends to repeat itself. 

Indeed, if history does repeat, stocks may have already bottomed. And they could rally about 20% over the next six months alone!

Here’s a deeper look. 

Bear Markets Tend to Die in October

October is known for the changing leaves, crisp weather, and the celebration of all things spooky.

But it should also be known as the month in which bear markets tend to die. 

Since 1950, Wall Street has experienced 17 bear markets. Six of them – about 35% – ended in October. 

That’s the most of any month of the year… by a wide margin. The second-best month? March, at three bear market endings. After that, it’s May, June, August, and December, all with two bear market endings. A bear market has never ended in January, February, April, July, September, or November.  

A graph depicting the most common months that bear markets end
A graph depicting the most common months that bear markets end

In other words, bear markets tend to die in October more than in any other month of the year by a significant margin. 

Sure, that may seem random. After all, what financial significance does October have? 

Most years, it doesn’t have any. But in 2022, it has a ton. 

Stocks Tend to Soar After Midterm Elections

2022 isn’t just another year – it’s a midterm year. The midterm elections are set to happen in early November, just as they do every four years. 

That’s important because stocks tend to soar after the midterm elections. 

Since 1950, the six months following the midterms have proven to be the best six months of the four-year presidential cycle. Stocks normally rally about 15% over that time. 

Perhaps more importantly, stocks have never dropped over these six months. We’ve had 18 midterm elections since 1950. All 18 saw stocks rally over the next six months. 

Even in 1990, amid a recession, stocks powered 24% higher during this six-month stretch. 

A graph depicting stock performance in the six months after midterm elections
A graph depicting stock performance in the six months after midterm elections

This isn’t random. It makes fundamental sense. These elections create political uncertainty. Once they’re over, that political uncertainty becomes certainty. And stocks rally on that certainty. 

Let’s combine the data… 

Bear markets tend to end in October. Stocks tend to rally big starting in November during midterm years. We’re in a bear market… in a midterm year… and it’s October… 

The stars certainly seem to be aligning for history to repeat. 

If it does, the potential gains over the next six months could be huge. 

A bear market has ended in October of a midterm year in 1962, 1966, 1974, 1990, and 2002. The average return? Almost 20%. 

If history is any guide, now is a really good time to start getting bullish for a big stock market comeback. 

The Final Word

It increasingly appears the stock market is working through a bottoming process. There’s a ton of evidence suggesting as much, including seasonality trends revolving around bear markets dying in October of midterm years.  

If so, that’s incredibly bullish because the greatest returns in stock market history are made when bear markets become bull markets. 

On average, the stock market rises about 10% per year. But after the 2020 bear market, stocks soared 27% in 2021 – about 3X their average. 

After the 2018 brief bear market, they popped 29%. 

After the 2008 bear market, they rose 24%. 

Following the 2002 bear market, they soared 26%. 

And after the 1990 bear market, they popped 26%. 

You get the point. In the years after bear markets turn into bull markets, stocks tend to soar by more than 20%, more than double their average annual return. 

They perform twice as good. 

But certain stocks tend to rise hundreds – even thousands – of percent during these transitions.

These special stocks are called “divergence stocks.” And we’ve developed a quantitative way to identify and capitalize on them for explosive returns. 

Learn about the best stocks to buy now for a new bull market breakout.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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