In the movies, there is often a provocative hook in the beginning and an exciting resolution at the end. If 2022 were a movie, this summer would be the meandering middle, the perfect time to restock at the concession stand.

With July nearly over and August upon us, not much new is happening now. But given the crazy start to the year (war, inflation, more Covid), should we anticipate 2022: The Movie to accelerate in the fall?

There are two possible paths - if the bad news is primarily behind us then perhaps the market has found a bottom. If higher consumer costs and lower confidence are yet to trickle into the general economy, then we could have some more plot twists ahead.

While no one can anticipate which of these outcomes will come to pass or even agree which are more likely, it’s important to remember that bear markets are part of the long term trajectory of stock prices.

Since it’s 95 degrees and summer mode has been activated, here are some easy to digest yet critical facts to help keep things in perspective while you sip a Frosé:

1. Bear markets are very normal. The S&P 500 has experienced 27 bull markets and 27 bear markets going back to 1928. Of course, every bull market is followed by a bear and vice versa.

2. Bear markets tend to be much shorter than their bull counterparts. The average bear market lasts just 289 days, while the average bull lasts 991 days. The good times are steady and long, while the bad are sharp and short.

3. Stock market performance and the real economy do not always move in tandem. So far, in the 27 bear markets recorded, only 15 occurred around economic recessions.

4. If you have an average investment time horizon of 50 years, it is reasonable to assume you will experience 14 bear markets. Even if your retirement time frame is shorter, take heart that only 20 years since 1928 have consisted of bear markets. This means stocks have risen 78% of the time.

5. In the past 20 years, half of the best days in the S&P 500 have occurred during a bear market. Missing out on those days can do real damage to a portfolio and that means it’s really important to avoid the temptation of trying to time the market.

As interesting as these facts are it is important to put this knowledge into action. We can deduce that bear markets are common and have only predicted a recession correctly ~50% of the time.

The fact that the market has paused this summer right around a 20% decline (the threshold for a bear market) suggests investors aren’t so sure of themselves and continue to wait and see how things play out.

On one hand, the expectation of recession could help business and consumers better prepare for what’s next. And there is certainly good news in the economy to be found. On the other hand, consumers may hunker down and make recession a self-fulfilling prophesy. In any case, record inflation, higher interest rates, and historically unaffordable rent/housing will continue to be a drag.

At Longwave, we continue to monitor and digest economic data as it becomes available, all year round. This information helps us understand our near future, while we follow our rigorous investment philosophy. We believe we are prepared for a plethora of market scenarios. Since one of our core tenets is considering historical context, this cycle hasn’t surprised us yet. Our recommendation: keep cool while the heat is on. Don’t let this market cycle stop you from enjoying your summer. Just remember that the markets have never failed to hit new highs and around every bear market is a bull market, ready to charge ahead.

Go with the Flow: How to Navigate the Market This Summer