Right now is a nerve-racking time to be an investor. Whether new to the game or well-versed, many are pondering: will the share market recover in 2022?
If there was such a thing as a haunted share market house, the current situation is possibly as close as it gets to a ride full of all the hair-raising antics sure to leave even the most seasoned participants a little unsettled.
The S&P500 is officially in a bear market and the S&P/ASX 200 Index (ASX: XJO) swiftly entered correction territory yesterday.
As a result, anyone that has invested in the broader market since February 2021 is wondering when their brave-faced buying might pay off.
What does history tell us?
Those that have walked around the investing block before will have heard the old Mark Twain saying, "History doesn't repeat itself, but it often rhymes." It embodies the heavily-used disclaimer by financial professionals: past performance is not indicative of future results. However, it can always serve as an informant for the approximate bounds of what we might expect.
The ASX is not yet in a bear market by definition, as depicted below. It would need to fall a further 9.6% to 6,018.7 points before following in the footsteps of the US market. If it were to reach this milestone, historical data from Bloomberg (between 1969 to 2018) suggests the average time to recover is 13 months.
On the other hand, the Australian share market might be able to avoid the grizzly bear market fate thanks to its overweight exposure to miners. ASX-listed giants such as BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG) have all managed to stay in the positive so far this year.
Although, whether these companies continue to hold up in the face of high inflation and increasing interest rates would be mere speculation.
Will the share market recover this year?
You might be saying, "But Mitchell, the history lesson still doesn't answer the all-important question." And you would be completely right. We all want certainty, we all want guarantees, and we all want the share market to transform into a bull again.
But I think legendary investor and Bridgewater Associates founder Ray Dalio put it best, "He who lives by the crystal ball will eat shattered glass." In other words, trying to predict when the share market will recover might be more harmful than helpful.
Our very own Motley Fool Australia chief investment officer, Scott Phillips is also no proponent of fortune-tellers, stating:
So, the honest answer is no-one knows the future. Some pretend they do. Some of those people probably even manage to fool themselves. But no-one knows for sure. Here's what I do know: The ASX has never yet failed to regain — then surpass — a previous high. What does that mean? Well, if (and, I think when, but no promises) the ASX gets back to its previous highs, there's decent upside from here just to get back to that point, then more again if (and again, I think when) it goes higher.
However, Phillips highlighted the potential advantages of sticking with your guns in the meantime, saying:
The problem is that our human nature doesn't predispose us to be good at waiting — or to be calm while we wait. So, it can be tough. And there's no getting around that. But historically speaking, it's been very worthwhile. And my money — literally — is on history repeating itself. When? I don't know. Nor does anyone else. But I think it'll happen. And when it does, I expect to be glad I just kept my head down, kept investing, and waited patiently for the market to recover.
So, there may not be a concrete answer as to when the Australian share market will recover. But, if the future holds any resemblance to the past, there's a good chance the tides will turn eventually. Whether next week, next month, or next year. When those tides turn is the quadrillion dollar question that — if everyone is being honest — nobody truly knows.
