When will the stock market recover? That’s the key question floating around many investors’ minds right now.
Yesterday, all eyes were on the S&P 500 Index, which briefly broke through its June low intraday. This move, which some attribute to a “double bottom” formation that could be bullish, is generating a lot of discussion right now. Indeed, many investors are simply looking for any sign this could represent “the” bottom rather than “a” bottom.
Some of the more bullish analysts out there expect some sort of recovery next year. Much of their thesis continues to rely on the idea of a Federal Reserve pivot to cutting rates in 2023.
Others suggest historical data from previous recessions could indicate much more downside is on the horizon. In both the dot-com bust and the Great Recession, the 200-day moving average was breached, which led to the second leg of a nasty selloff. With this key level in sight, it’s clear investors will be watching price levels more than normal.
Let’s dive into what to make of these conflicting signals right now.
Will the Stock Market Recover This Year or Next?
First off, I think it’s unlikely we’ll see rate cuts next year. It’s certainly entirely possible these higher interest rates could lead to a recession. However, until inflation comes down meaningfully toward the 2% target, the Federal Reserve has made it clear that higher interest rates are likely to stay. Accordingly, at least through 2023, we may be in for more pain than initially thought.
That said, the question I think is more pertinent right now is how long this bear market will last. Every bull market is preceded by a bear market. This cyclicality is important to the proper functioning of the system. Accordingly, for long-term investors looking to stick with it, now is probably not the time to panic.
Sure, indices could drop much more from here. They have in the past. But missing out on a handful of the best days in the market (which usually come alongside some of the worst days) could limit investors’ returns substantially over time.
My take is we could be in for a few years of pain. It’s not likely this recession (and technically, we’re in one) will resemble in any fashion the V-shaped nature of the pandemic crash. We’ve got soaring inflation, which will need to be dealt with before any recovery is underway. Thus, it may be shopping season for some time for long-term investors.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.