Wall Street Is Nervous. Here's What 100 Years of History Says Happens to the S&P 500 Now.

💡 A century of data suggests the S&P 500 tends to recover within 12 months after a recession.

The S&P 500 has been on a wild ride lately, with the index experiencing its worst start to the year since 1970. Investors are growing increasingly anxious, wondering what the future holds for the benchmark.

Over the past century, the S&P 500 has experienced 47 recessions, with each downturn followed by a recovery period. A closer look at the data reveals a telling pattern: the S&P 500 tends to recover within 12 months after a recession.

The 12-Month Rule

A study of the S&P 500's performance during and after recessions reveals that the index has consistently bounced back within a year. In fact, the average return of the S&P 500 during the 12 months following a recession is around 20%.

The Importance of Context

It's essential to consider the broader economic context when assessing the S&P 500's prospects. The current recession is likely to be mild, with the economy expected to contract by around 1.5%. This compares favorably to the 3.5% contraction experienced during the 2001 recession.

The Role of Monetary Policy

The Federal Reserve's response to the current recession will be crucial in determining the S&P 500's trajectory. A dovish pivot, similar to the one seen in December, could lead to a swift recovery. However, a hawkish stance, as signaled by Jerome Powell's recent comments, may prolong the downturn.

What It Means for Investors