Recession Returns

The length of a recession (assuming we are in one), is critical for subsequent gains in the market. This week's Barron's states: "In post-war recessions lasting less than 12 months, the S&P 500 has gained an average 9.85% a year after the recession started, according to PNC's Stone. But if the slump dragged on more than 12 months, the average stock-market return a year after the recession started is -22.64%." Past bear markets have also historically been followed by an average compression in P/E multiples of 22%. Bespoke Investment Group also finds that the cumulative return of the S&P 500 since late 2002 (when the bull market began) has been -8.1% during earnings season (starting next week and ending in mid-May). On the other hand, market returns between earnings announcements (once they end and before they begin again) has netted +61.6%. Not necessarily unexpected during a bull market, but interesting nonetheless. No doubt some of the negative returns during earnings season may involve buying on the rumor and selling on the news, especially when companies beat previously lower expectations.