S&P 500 May Forecast Recession’s End

The Standard & Poor’s 500 Stock Index is composed of leading and varied U.S. companies and industries and is generally seen as the standard measure of the U.S. market. It may also signal when the current recession is about to end, according to economic data from Idex Mutual Funds in Clearwater, Fla., which studied recessions that occurred between 1948 and 2000.

  • First, the S&P 500 tends to decline many months in advance of a recession.

  • Second, it often bottomsduring a recession in advance of improving economic news.

  • Finally, the Index typically starts climbing upward prior to the end of a recession.

Brian Gilmartin, CFA, portfolio manager, Trinity Asset Management, Chicago, Ill., believes, based on historical trends, that this year’s return on the S&P 500 Index will be at least 20%.

“Typically, you see the S&P 500 Index increase 10% to 15% after one year of negative returns,” says Gilmartin. “But we’ve just experienced an exceptional period—from March 2000 until now [late Fall 2001]—because the market has seen two years of negative returns, an activity that hasn’t happened since 1973-1974, and before that, the Depression. The turnaround for 2002 has already started: Since September 21, 2001, the S&P is up 19%.”

50 Years of S&P 500 Ups and Downs
Through 1999, nine out of 10 down years were followed by up years. Average return in a down year was –12.9%, average return in an up year following a down one was 16.7%.

Year Return*
Source: Idex Mutual Funds, Clearwater, Fla., and Commodity Systems Inc., Boca Raton, Fla.
*Unweighted Annual Returns
1953 -6.62%
1954 31.05%
1957 –14.31%
1958 27.57%
1962 –11.8%
1963 15.89%
1966 –13.09%
1967 16.73%
1969 –11.36%
1970 0.10%
1973 –11.37%
1974 –29.72%
1975 23.98%
1977 –11.50%
1978 1.05%
1981 –9.73%
1982 12.86%
1990 –6.56%
1991 20.83%
2000 –10.14%