Stocks have been flirting with correction territory in recent months–and though the tech-heavy Nasdaq Composite dipped into a bear market last week, historical data shows that investors should look past market volatility, with experts urging investors to buy the dip on the market’s recent selloff.
While the tech-heavy Nasdaq Composite has rebounded somewhat in the last week, the index dipped into bear market territory on March 14—at its low point down more than 20% from its peak last November.
Investors can never be sure whether a down market will turn out to be merely a bump in the road or a full-fledged recession, but historical data shows that those who buy in bear markets tend to be rewarded—with stocks often roaring back over one -, three-, five- and ten-year periods.
“Buying when stocks are in a bear market is generally a good strategy,” Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, recently pointed out in his blog, “A Wealth of Common Sense.”
His data shows that since the start of a bear market, the Nasdaq has returned on average 22% after one year, 52% after three years, 87% after five years and a whopping 328% over ten years.
Last week’s rally “reflects the willingness of investors to shift to a ‘glass-half-full’ mindset,” says Nationwide’s chief of investment research, Mark Hackett, who adds that “markets are now showing favor to the fundamentals,” which should ” set the stage” for an upcoming rally.
JPMorgan Chase is among major investors that believes this year’s market “still has upside,” and it recently noted stocks could see a 10% rally from current levels despite ongoing uncertainty from the Federal Reserve’s rate hikes and Russia’s invasion of Ukraine.