In a year of wild market swings, the third quarter of 2022 was a time when events took a truly extraordinary turn.
Many investors are looking to the next three months with trepidation, betting the selloff in U.S. stocks will continue until there are signs the Fed is winning its battle against inflation.
Yet the last quarter of the year has often been a beneficial time for U.S. equities, spurring hopes that markets may have already seen the worst of the selloff.The strategy of buying stock market dips yielded rich rewards for investors in the past but failed badly in 2022: the S&P 500 has rallied by 6% or more four times this year and went on to make a fresh low in each instance.
The third quarter saw the index rise by nearly 14% before reversing to make a fresh two-year low in September after investors recalibrated their expectations for even more aggressive Fed tightening.With several big Wall Street banks expecting the benchmark index to end the year below current levels - Bank of America and Goldman Sachs both recently published year-end targets of 3,600 - the outlook for dip-buying remains murky.
In addition, the current bear market, which has so far lasted 269 days and notched a peak-to-trough decline of about 25%, is still relatively short and shallow compared with past drops. Since 1950, the average bear market has lasted 391 days with an average peak-to-trough drop of 35.6%, according to Yardeni Research.Though equities have been volatile, the gyrations in bond markets have been comparatively worse.
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