It makes sense to be cautious right now, since there are so many downside risks. We think central banks will probably “jam on the brakes” to regain control of inflation. This would prove particularly challenging for risk assets.
We believe risk assets are likely to face stiff headwinds near-term and can be expected to decline further should recession fears become reality. In other words, despite the poor performance this year, the market does not appear to be priced for a recession – yet. One explanation for this is that there remains a possibility a recession can be narrowly avoided, and markets could then begin to recover later this year.
History suggests bear market rallies are frequent but fleeting in the face of economic challenges. Indeed, most bear markets throughout history are associated with recessions. Yet, there are some grounds for optimism. Analyzing the S&P 500 performance in every bear market since 1929, in 70% of instances going back to the Great Depression, the S&P records a positive return in the next year after entering a bear market,1 according to the Global Economics and Investment Analysis team.
The BNY Mellon Investment Management Global Economics & Investment Analysis (GEIA) Team
1 1-year forward price return from the date the S&P 500 first closed more than 20% below the prior peak BNY Mellon Investment Management, Bloomberg. Data as of 20 June 2022.
All investments involve some level of risk, including loss of principal. Certain investments have specific or unique risks. Any views and opinions are those of the investment manager, unless otherwise noted and is not investment advice.
Past performance is no guarantee of future results.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others.
This material has been provided for informational purposes only and should not be construed as tax advice, investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change.
This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.