A year after the market’s lows, everyone wants to know what Year Two will look like.
Using the ten S&P 500 bear market troughs since 1926, Bank of American Merill Lynch (BAML) found that the average price advance from a bear market low in Year Two is 9%. This follows an average gain of 46% in the first yeara.
On nine out of ten occasions, the second year after a trough was a year of positive returns for the S&P 500. History also shows that fixed income returns tend to be flat in Year Two.
BAML believes March 9, 2009 was a multi-year bear market low and expects 2010 will be different from the extreme markets of 2008 and 2009. “Neither a major collapse nor a massive gain is likely.”
David Bianco, its chief U.S. equity strategist, has a target of 1,275 for the index, which represents upside of 12%. BAML’s fixed income strategists anticipate a slightly negative return for U.S. treasuries in 2010.