Down 15%, Is the Dow Jones Poised to Recover in the Back Half of 2022?

Will it or won’t it? That’s the question haunting most investors right now. Will the stock market continue to tumble, or can we expect a rebound to materialize at some point in the second half of this year? And if it’s the latter, will the blue chip-laden Dow Jones Industrial Average (DJINDICES: ^DJI) fully participate in that rally, and perhaps even lead the Nasdaq Composite (NASDAQINDEX: ^IXIC) and the S&P 500 (SNPINDEX: ^GSPC) out of their funk)? Or, will we see growth-minded tech names lead the charge yet again?

Well, there’s good news for anxious investors…mostly. The Dow is apt to make a major bottom sometime soon, if it hasn’t already. The blue chips that comprise the Dow Jones Industrial Average, however, aren’t likely to lead the way. That doesn’t mean its recovery won’t be worth plugging into, though.

Image source: Getty Images.

But, there’s something you need to know before making any decisions to this end.

Playing the odds

Just for the record, nobody has a crystal ball. The market’s underpinnings are always fluid, and are particularly unpredictable right now.

If you believe that history — all history — repeats itself at least on occasion, there’s a case to be made for wading back into stocks here. The calendar is a key component of this bullish argument.

Ever heard the phrase “October is a bear killer”? It’s simply a nod to the fact that many bear markets end and many bull markets begin in the month of October. It’s an axiom because there’s quite a bit of truth to the statement. The graphic below tells the tale, plotting the Dow’s average performance during a year in which it logs a loss. As you can see, the misery typically ends in October following a 13% setback from the beginning of the year, leading into a slow but measurable recovery.

Data source: Thomson Reuters. Chart by author. Note: “Average” line applies to the same dates of the year as shown for the 2022-to-date line.

As the old adage goes, past performance is no guarantee of future results. Some of the bearish years that were considered in the calculation of the chart’s data ended up being immediately followed by another bearish year. On the flip side, most of them didn’t. An October turnaround is actually oddly reliable, and certainly more common than not when the Dow is down for the year.

There’s more.

While it’s been a long, long while since most of today’s investors remember one being this short-lived, the average bear market doesn’t last all that long. Number-crunching done by mutual fund company Hartford says the average bear market lasts 289 calendar days, or 9.6 months. Assuming the current bear market is relatively typical, the Dow’s peak of 36,953 made in early January would put the turnaround sometime in — you guessed it — mid-October.

The quest for perfection can be costly

Again, there’s more to navigating bear markets than keeping your eye on the calendar. Earnings are always the overarching factor. And, between Russia’s invasion of Ukraine, contentious midterm electioneering, sky-high inflation, soaring interest rates, and the prospect of moving into an economic recession, anything’s possible at any time.

On the other hand, it’s never wise to ignore the market’s clear calendar-based tendencies. October may well be a bear killer specifically because investors start to see clarity regarding elections around that time. Plus, corporations are starting to wind down fiscal years and starting to share plans for the coming year by then. October is also when the federal government’s fiscal years end and begin. Perhaps these are all factors that contribute to the month in question being the bear killer it’s often described as.

One thing is for sure, though. Given that some of the market’s biggest and best bullish moves materialize right at the onset of new bull markets — and that you rarely know the exact point a bear market ends — figuring out if the Dow is due for a recovery within the next six months may be a misguided endeavor.

See, nobody can time the market very well for very long, and trying to do so generally does more financial harm than good. You’re far better served just by keeping things simple and buying good stocks when they’re down, and planning on sitting on them for at least five years. If you can do that, the exact timing of any rebound doesn’t even really matter.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

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