U.S. stocks are in the midst of the longest sell-off in decades.

Whether they are close to the bottom can only be guessed.

Market sales have long baffled strategists trying to predict when they are nearing the end. Some ended in explosions of panic sales. Others, such as the one that lasted from 1973 to 1974, stopped after a few days of low trading.

Many investors and analysts, looking back at historical declines, believe that the current fall, which has put the S&P 500 on a bearish market, still has a way to go.

The index fell 19% from a January 3 record, flirting with a 20% decline that would put an end to the bull market that began in March 2020. This year’s sale of shares, which is now in its fifth month, has already lasted much longer than the typical rollback without a recession, according to Deutsche Bank.

However, the Federal Reserve is still in the early stages of its campaign to raise interest rates, which means that financial conditions will be even tougher and put more pressure on stocks in the coming months. Many people are skeptical that the central bank will be able to continue raising rates without throwing the economy into recession, a period when stocks have typically fallen about 30% since 1929, according to Dow Jones Market Data.

Evidence continues to suggest that this year’s sell-off, while painful, has not yet led to the shifts in investment behavior seen in previous downturns.

Investors continue to have a significant portion of their portfolios in the stock market. Bank of America Corp..

said this month that private clients have an average of 63% of their stock portfolios – much more than after the 2008 financial crisis, when they had only 39% of their stock portfolios.

The measure of expected market volatility remained well below the levels it violated during previous sales. The Cboe volatility index, or VIX, jumped well above 40 during sales in March 2020, November 2008 and August 2011. It has not yet closed above that level this year.

Investors were in no hurry from some of the downtrodden parts of the market. The stock exchange ARK Innovation received a net inflow of $ 1.4 billion this year, despite the fact that it is on track to achieve the worst profit in its history, according to FactSet. Leverage ETFs, which offer investors a way to boost bullish rates on the Nasdaq-100, as well as semiconductor stocks, have raised billions of dollars this year.

“We still need to shake the foam out of the markets,” said Cole Smith, president and portfolio manager of Smead Capital Management.

Like many other investors, Mr. Smith has tried to identify businesses with attractive estimates that he believes could withstand rising inflation and slowing growth. One of the companies Mr. Smith was looking at was Starbucks Corp..

, shares of which the firm previously owned. But like almost everything else in the stock market, shares of the coffee chain have fallen this year.

Shares of Starbucks fell 37% in the worst year since 2008. The S&P 500 was down 18% year-on-year and posted its seventh weekly loss on Friday, the longest series since 2001.

“Things will get worse before they get better,” Mr Smith said.

One of the reasons why many investors are now wary? High inflation. The Fed is raising interest rates to try to curb inflation, which earlier this year has been growing at its fastest pace since the 1980s. It seeks to make a “soft landing” – in other words, to slow the economy enough to curb inflation, but prevent the US from falling into recession.

Many investors fear that the central bank will not succeed based on previous cycles of tightening monetary policy.

According to a study by the Federal Reserve Bank of St. Louis, going back to the 1980s, the U.S. slipped into recession four out of six times when the Fed launched campaigns to raise interest rates. This time the central bank has an additional challenge trying to take control of rising prices, while Russia’s invasion of Ukraine and China’s zero Covid policy are contributing to supply chain disruptions and inflationary pressures around the world.

“Hell has no chance that the Fed will be able to suppress inflation without a significant deterioration in domestic demand,” said David Rosenberg, president and chief economist at Rosenberg Research.

Mr Rosenberg added that he said markets would find it difficult to find a bottom line before the Fed tightened monetary policy, or it convinced investors that it could reduce inflationary pressures without the risk of a recession.

Others note that the stock decline, while painful, has not yet reached the seriousness of previous bear markets.

Since 1929, the S&P 500 has fallen by an average of 36% during the bear market, according to Ned Davis Research.

The end of the sale will be a “great opportunity to buy, but I don’t think this moment will necessarily be here tomorrow,” Mr Smith said.

Email Akane Otani at akane.otani@wsj.com

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