'Don't try to be a hero': The stock market will — eventually — roar back, history shows

On the bright side of what has increasingly been a terrible year for stocks is that over time, history is filled with self-corrections and comebacks.

The S&P 500 has gone on to increase on average by 29% in the three years following a 20% plus decline dating back to 1950, according to data mined by Truist chief market strategist Keith Lerner. Stocks have gained 26% on average after a 20% plus fall zooming out and using a two-year timeframe.

Hang in there. (Source: Keith Lerner)
Hang in there. (Source: Keith Lerner)

To be sure, most investors probably can't wait for it to be 2025. In the meantime, while history shows markets mean revert over time, Lerner advised that investors need to be careful at the moment as markets adjust to higher interest rates and weakening economic growth.

"Don't try to be a hero," Lerner said on Yahoo Finance Live (video above). “The moves have been violent. What we discussed in June and also in August, is to try to get a bit more tactical. You’re not going to get every call right, and it’s not always going to work out.”

The Dow Jones Industrial Average (^DJI), S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) are down 9.2%, 9.7%, and 10.6% over the past month, respectively, and once-hot momentum names in tech such as Netflix and Apple are being crushed as traders unwind leveraged bets amid rising interest rates.

Market sentiment has been damaged by a convergence of factors.

For one, the Federal Reserve continues on its mission to stomp out inflation by aggressively hiking interest rates. In turn, that has caused ripple effects across an array of asset markets: everything from a surging value for the U.S. dollar to mortgage rates nearing 7%.

Those crosscurrents are beginning to show up in economic data, with the Bureau of Economic Analysis saying Thursday first half Gross Domestic Product (GDP) declined.

We also recently saw a full-year profit warning from North Face owner V.F. Corp. as retailers battle the economic slowdown as well as reports of Apple (AAPL) cutting iPhone production on growth fears — prompting a headline-grabbing downgrade on the tech giant's stock by Bank of America. Furthermore, earlier this month, FedEx (FDX) shocked the market by slashing its full year guidance.

But what goes down must eventually go back up, right?

An American bald eagle at a bird sanctuary in Millington, New Jersey, on December 12, 2006. REUTERS/Mike Segar
An American bald eagle at a bird sanctuary in Millington, New Jersey, on December 12, 2006. REUTERS/Mike Segar

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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