S&P 500 Posts Worst First Half Loss Since 1970: What It Means And What Could Be Next

In mid-June, the U.S. stock market fell into market correction territory with the S&P 500 trading down 20% from its all-time highs.

The stock market index just turned in its worst first half since 1970 with several macro trends playing out. Here’s a look at what happened and what could be next.

What Happened: The S&P 500 closed the month of June at $3,785.38. The index had its worst first half of a year since 1970 and posted the worst quarter since the first quarter of 2020, a period that included the official declaration of COVID-19 as a pandemic.

Among the underlying issues hurting the stock market in the first half of 2022 were the Russia-Ukraine conflict, COVID-19 lockdowns in areas such as China and rising inflation. The Labor Department reported an 8.6% increase in the Consumer Price Index in mid-June, the highest inflation rating since 1981.

LPL Financial reported that the first 100 trading days of 2022 were the fourth-worst start for the S&P 500, trailing only 1932 (Great Depression), 1940 (World War II) and 1970 (Vietnam War and recession).

The SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500 closed the first half of the year at $377.25, down 20.8% for the first six months of the year.

Related Link: Here's How Long Bear Markets Last On Average And What Returns Investors Could See After Correction

What’s Next: Searches for the term “recession” have risen on Google, with some investors and consumers worried that the U.S. is headed into a period of declining economic performance. Some analysts already point to the U.S. being in a recession.

The good news for investors could be the returns that have come for stocks after past market corrections and recessions.

LPL Financial shared that the average one-year return from the low of a correction is 23% since 1980. The average two-year return from the low of a correction since 1980 is 37.5%. Only two times out of 24 has the market been negative for the year after the correction, which could be a hopeful note for long-term investors.

“As rough as bear markets are, the good news is the future returns really improve once stocks are down 20%. In fact, a median gain of nearly 24% a year after a bear market starts may help some beaten-down bulls confidently stay the course,” LPL Financial’s Ryan Detrick said previously.

Benzinga recently shared that a $1,000 investment in the SPDR S&P 500 ETF Trust at the end of The Great Recession (2007 to 2009) is now worth over $4,100 today, representing an average annual gain of 24.2%.

While the long-term results have fared well for investors after market corrections and recessions, trends also show the second half of 2022 could see gains.

Detrick noted years that start significantly down in the first 100 days often have strong returns in the second half of the year. The previous five years with the lowest first 100 trading days saw gains of 19.1% on average.

The last time the S&P 500 had this bad of a first half was in 1970. The S&P 500 had a strong return in the second half of 1970 to post a gain on the full calendar year.

The COVID-19 pandemic played a role in 2020 having a small return in the first half of 2020 before seeing a gain of 21% in the second half to close the year with a gain of over 16%.

The big question marks remain the global items like international conflicts and shutdowns and the rising inflation in the U.S. and elsewhere. With the possibility of a recession likely priced into the market at least partially, the returns in the second half could beat the first half.

Photo: Immersion Imagery via Shutterstock