It may require a technical event, such as a successful test of the March/April lows, to get the market out of the doldrums. First, though, sentiment may have to deteriorate further, according to S&P technical analyst Mark Arbeter. If September and October hold true to form, says Arbeter, we could soon see a selloff that generates the fear that finally washes stocks out of weak hands and leads to a sustainable recovery.
September has been the poorest month of the year for the market over the long term, averaging a decline of 1.1% on the S&P 500 since 1926. October has frequently been the bottoming-out month. One-third of the 24 postwar corrections ended during October.
In the past, good money has been made in the period just after a bear market bottom. Three months after the nine postwar bear markets ended, the S&P 500 was up an average of 15%. Six months after the lows, the index was ahead an average of 24%. A year from the low, the "500" showed an average rise of 35%, with none of the gains less than 21%.
While further weakness may be seen in the period immediately ahead, stocks seem likely to outperform bonds and cash equivalents by a healthy margin over the next six to 12 months. Kaufman is editor of Standard & Poor's weekly investing newsletter, The Outlook