Due for a Rebound?

Does the stock market's poor performance in the second quarter of this year portend bigger things ahead? Morgan Stanley has compiled a look back at the quarters since the Great Depression in which the equity markets have lost more than 10 percent overall - as they did in the quarter we just finished - and found that there's almost always a nice bounceback.

Of the ten quarters showing the biggest loss, nine of them showed positive returns over the following year. The one that didn't was the third quarter of 2001, which was followed by a loss of 20 percent over the next four quarters. All ten of those quarters, though, were followed by positive returns over the course of the following five years, as well as over the following ten years - not counting those where ten years haven't passed yet. That's an important qualification, since some of those quarters were from the early 2000s and have suffered through the recent recession. So the history might not be as rosy as Morgan Stanley perceives.

And as we've seen, this market doesn't have much respect for history. It's nice that down quarters have tended to turn into long bull markets, but it's not at all a sure thing.