The recent trends in the S&P 500 indicate a challenging period for investors, as the index has experienced a notable decline over the past four weeks. This downturn can be primarily attributed to rising oil prices and ongoing economic uncertainty related to the Trump administration’s trade policies. The formation of a bearish breakdown on March 19, where the index fell below its 200-day moving average, has alarmed many. Historical patterns suggest that this is not the first time the S&P 500 has faced such a predicament, recalling a similar situation in March 2025, shortly after President Trump initiated tariff announcements.
Analysts express concern that, historically, such bearish trends may worsen before any potential recovery. Data from the past decade reveals that the S&P 500 has dipped below its 200-day moving average 28 times, usually resulting in an average decline of 17% over the following year. Currently, the index is 6% lower than its peak of 6,797, reached in January 2026. Should it follow historical patterns, this could mean a further drop to around 5,642, representing a 13% decrease from its current level of 6,506.
Despite these grim predictions, historical trends also provide a glimmer of hope. The S&P 500 has historically rebounded swiftly from such declines, evidenced by an average uptick of 16% over the next year after previous bearish breakdowns. If this trend continues, projections suggest the index could rise to approximately 7,612 by March 2027, regardless of how deeply it falls in the interim.
Moreover, the S&P 500’s performance during midterm election years has typically been lukewarm. Since its establishment in 1957, the index has registered considerable volatility during these periods, often as a result of policy uncertainties. Traditionally, the party in power experiences losses in Congress, inducing questions about the feasibility of the president’s agenda. This uncertainty often leads investors to withdraw from the market, resulting in an average peak-to-trough decline of 18% during midterms, closely aligning with the anticipated 17% decline implied by the current bearish breakdown.
Nevertheless, once the midterm elections conclude, the historical trend suggests a swift market recovery, with research indicating that the S&P 500 generally performs best in the six months following the elections. This period—November through April—has seen an average return of 14%, mirroring the expected 12-month gain of 16% post-bearish breakdown.
While some investors might contemplate exiting the market now and reinvesting in November to avoid potential losses, experts caution against attempting to time the market. The warning from renowned fund manager Peter Lynch stands: “Far more money has been lost by investors trying to anticipate corrections, or trying to time the market, than has been lost in corrections themselves.”
As the U.S. stock market grapples with various challenges—such as the impact of tariffs on GDP and job growth, potential recession fears due to rising oil prices, and the usual midterm election year volatility—what’s the best course of action for investors? While the likelihood of further declines in the S&P 500 persists, history showcases a pattern of recovery following downturns. Many see this period as an opportunity to invest, urging investors to consider setting aside cash to buy stocks or S&P 500 index funds. While it may be prudent to deploy some cash now, retaining a portion for potential further dips could also be a viable strategy.
