When Will the Stock Market Recover? Strategies to Use During Uncertainty
The honest truth is that we don’t know when the stock market will recover. It could recover over the next month, year, or even longer. To make matters worse, trying to guess when the stock market will recover is a form of market timing. Unfortunately, market timing is a nearly impossible task.
Time in the market can take the guesswork out of predicting stock moves. More importantly, it is time in the market that can lead to superior returns. As opposed to forecasting when the stock market will recover, remaining invested in stocks can ensure that you’re invested when the market finally recovers.
Long-term buy-and-hold investors may prefer to simply remain invested. That may be because they know that stock markets have crashed many times throughout history. Each time, the stock market has recovered. By staying invested in the stock market during troubling times, investors can get rid of the risk of being wrong when forecasting stocks eventual recovery.
In other words, by staying invested, you’re taking luck out of the equation. In addition, by staying invested in stocks, buy-and-hold investors incur fewer trading costs than investors buying and selling based on ever-changing forecasts.
Though we don’t know when the stock market will recover, that hasn’t stopped some folks from making predictions. Here are a few forecasts of when the stock market will recover.
Will the Stock Market Recover in 2022? Two Optimistic Views
There is no shortage of views about the stock market in 2022. Some are positive, and some are negative. Here are a few optimistic views for investors to consider.
- Though most stock market indexes in the U.S. have entered a bear market of negative 20% or more, one analyst thinks the markets will fully recover by the end of the year. This article, based on a report by JP Morgan (NYSE: JPM), says the U.S. will avoid a recession this year due to a strong consumer and the reopening of China after its strict COVID-19-related lockdowns.
In addition, the analyst thinks a solution to the conflict between Russia and Ukraine could happen in the second half of this year. If that is the case, high oil and natural gas prices could come down and inflation could moderate.
- Another piece based on the opinion of CFRA Chief Investment Strategist Steve Stovall is also optimistic about a stock market recovery by the end of 2022. Stovall observed, “In 2021 we had a price increase in excess of 20%, and in each of the 20 years since World War II in which we had a calendar year gain of 20% or more, the market then fell into a decline averaging around 11%. Most times the decline started in the first quarter. That’s exactly what we’ve got this time around.”
He added, “If there is a silver lining to that historical data,” he said, “it is that any of the observations where the decline has started in the first half of the year, we got back to break-even by the end of the year every time.”
Will the Stock Market Recover in 2022? Two Pessimistic Views
With stock market indexes in bear territory, it’s easy to see why folks think a stock market recovery may take some time. These folks think a rally in the stock market goes past 2022.
- An online article by GoBankingRates says, according to Reuters, the average bear market typically bottoms out after a little more than 12 months and then takes two years to fully rebound. Today we are in June, so by historical standards, a stock market recovery may happen well beyond 2022.
The article also points out that things could be different if there is a recession along with the bear market in 2022. For instance, an average recovery time of roughly one year once a bear market reaches the bottom. But that can expand to 15 months if a recession accompanies the bear market. If that is the case, the stock market will recover after 2022.
- This article from Money.com also thinks a recession will determine when the stock market will recover. The article says, “Looking at the data from 1950 until today, if a bear market was accompanied by a recession, the weakness in stocks usually continued longer.” Though the U.S. has not officially entered a recession yet, the predictions of a recession are mounting.
According to the article, the chances of a stock market recovery in 2022 look bleak. It said, “The worse a bear market is, the longer it takes to recover, LPL Research found. For example, when a bear market decline was less than 22%, it took just seven months on average to recover, but when a bear market decline was more than 22%, it took an average of 27 months.” The S&P 500 stock index is down just over 23% this year.
Two Strategies to Use During Uncertainty
There are a ton of questions about when the stock market will recover. That situation can leave investors worried. When emotions are running high, it can lead to bad investment decisions. Try these investment strategies to take the psychology out of it.
- Dollar-Cost Averaging: Invest a set amount of money in your accounts regularly. That may be monthly, quarterly, or with each paycheck (like one does in a 401(k)). When the stock market retreats, you’ll buy more shares of each stock, mutual fund, or ETF with your set dollar amount. When the market finally recovers, you’ll benefit from owning more shares than if the market never fell.
- Averaging Down: In a similar vein, increase your investment when your favorite stocks, mutual funds, or ETFs get hit. When they recover, the securities you bought at lower prices will boost the returns in your account.
These strategies may be easier said than done, but they’re both long-term investment strategies. Long-term plans often perform better than short-term trading strategies.
About BJ Cook
BJ Cook is a long-time stock nerd. He has held several roles in the equity research world and earned the right to use the CFA designation in 2014. When he’s not writing for Investment U, you can find him searching for new investment ideas. Outside the investment community, BJ is a die-hard Cubs fan.