2022 Stock Market Downturn
What you need to know about investing during a market decline.
Updated February 18, 2025
2 min. read
Learn about what caused the 2022 stock market downturn and see why our experts think you shouldn’t time the market.
What has caused the current market downturn
2022 has been a challenging year for US stocks to say the least. Investors have had to contend with a multitude of concerns with inflation, rising interest rates, the ongoing pandemic and war in Ukraine at the forefront. This, of course, has led to increased market volatility with the S&P 500 barely escaping a technical bear market in May, but still in correction territory this year.
This ongoing weakness has naturally increased fears that recession may be looming. It’s important for investors to know that difficult times such as these require process and discipline since emotional or panic trading typically leads to disastrous investment results, in our view.
How to invest during a market downturn
Successfully timing the market on a consistent basis is an extremely difficult task and even the slightest missteps can have a significant performance impact. For the 10-year period between 2012 thru 2021, the S&P 500 delivered a 14.3% annualized price return. Excluding the five best performance days each year would bring that return down to 0.4%, while excluding the five worst days would lift the return to 32.9%.
Obviously, missing the worst days would be ideal, but history has shown that most of these days tend to occur unexpectedly, making them nearly impossible to predict and many of the best days have occurred soon after the worst days. Even if an investor timed the market in a way to avoid both the five best and worst days, the annualized return would still only be 2.5% higher than staying invested throughout the period. It is more beneficial for investors to maintain investment discipline instead of trying to time the market.
Market Timing Is Very Difficult and Missteps Can Be Costly
Missing Best & Worst Days Can Have a Significant Impact
Source: BMO Capital Markets Investment Strategy Group, FactSet.
Why you shouldn’t try to time the stock market during a downturn
Our findings show that longer investment horizons have historically produced superior risk-adjusted returns. For instance, we analyzed the rolling monthly price returns since 1950 for one-, three-, five-, 10-, and 20- year holding periods. Although average returns across the investment horizons were relatively similar, the range of returns varied considerably with shorter holding periods the most volatile and longer holding periods much smoother. As such, the Sharpe ratios for longer holding periods are more favorable than those for shorter periods. Yes, longer time horizons will lower the chances of capturing outsized gains, but these holding periods also tend to avoid extreme losses.
Longer Holding Periods Do Not Necessarily Hinder Investment Returns
Source: BMO Capital Markets Investment Strategy Group, FactSet.
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The opinions and views expressed in this presentation are those of the presenter and not necessarily BMO InvestorLine Inc. This presentation is prepared as a general source of information and is not intended to provide legal, investment, accounting or tax advice, and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained. Any information contained in this presentation does not constitute and shall not be deemed to constitute advice, an offer to sell/ purchase or as an invitation or solicitation to do so for any entity. The content of this presentation is based on sources believed to be reliable, but its accuracy cannot be guaranteed. BMO InvestorLine Inc. and its affiliates, sponsors and employees do not accept responsibility for the content and makes no representation as to the accuracy, completeness or reliability of the content and hereby disclaims any liability with regards to the same.
