Equity bear market - a buying opportunity for pension schemes or sign of more trouble ahead?

We’ve witnessed a bear market on the S&P this week with the US index falling 20% from its recent high. But a question many pension scheme investors will be asking themselves is how do markets typically perform going forwards from this?

We’ve looked at how global equity markets have performed following bear markets in the past 50 years i.e. following 20% falls from recent highs. This has happened 6 times in that period, slightly more frequently than once every 10 years.

The chart shows the various historical bear markets lined up against each other, with returns on £100 invested following the 20% fall including dividend reinvestment.

Source: Refinitiv, MSCI World total return index, XPS calculations

Three key observations - the short term looks very different to the longer term

  • After six months 4 out of the 6 have fallen further
  • But after one year 4 out of the 6 are back in positive territory
  • After two years 1 out of the 6 is meaningfully down, and 3 out of the 6 have reached new historic highs

Being a long term investor is the name of the game. It’s important to have a well-designed strategy and to stick to it. Don’t lose your nerve.

If you would like more information or to comment please contact Simeon Willis, Chief Investment Officer.