Down years don't last.
Eleven S&P 500 sectors, fifteen years, 34 negative sector years. Here is every losing streak any of them had, and what happened next.
Three quarters of losing streaks are over in a single year.
There were 115 separate losing streaks across the 24 markets. Not one of them ran longer than four years.
The first year back averaged 24.1 per cent.
Across 112 recovery years the median was 19.6 per cent. The weakest was Brazil in 2012 at 0.3 per cent. The strongest was South Korea in 2025 at 100.8 per cent.
In all fifteen years, some markets were down while others were up.
Red shows how many of the 24 markets were negative that year. Green shows how many were positive. You never had to guess which market was about to turn. You only had to hold all of them and keep the weights where you set them.
2015 was the worst year in the sample: 23 of 24 markets fell. In 2016, fifteen of them posted their first year back, averaging 19.5 per cent. Rebalancing is what moves money from the ones that already ran into the ones that are about to.
If a sector just had a bad year, what happens next?
Across all 34 negative sector years from 2011 to 2025.
91.2%
were positive the very next year
100%
were positive within two years
25.8%
average return in the first year back
What if you put the money into the sectors that just fell?
Set a starting balance, choose a rule, and the model applies it every year from 2011 to 2025. Each 31 December it ranks the sectors on the year just finished, moves the whole balance into whichever ones the rule selects, and holds them for the next twelve months. The pale line is the S&P 500 itself, so every rule is measured against simply owning the index.
| Year | Held for that year | Balance at 31 December |
|---|
Concentrating a balance into a handful of sectors is an extreme position, shown here to test an idea against history rather than to suggest anyone should hold it. The model assumes rebalancing is free and instant and ignores fees, spreads, brokerage, tax and currency conversion to Australian dollars. Only 34 of 165 sector years were negative, so this rests on a small sample.
What fifteen years of sector data shows
Losing runs are very short. Of the 31 separate losing runs, 28 lasted a single year and the other three lasted two. Not one sector was down three years running.
The recovery year is large. Across 31 recovery years the average return was 25.8 per cent and the median 23.4 per cent. Nine in ten cleared 10 per cent. The weakest was Consumer Staples in 2023 at 0.5 per cent, the strongest Information Technology in 2023 at 57.8 per cent.
Waiting the extra year cost almost nothing. The three two year runs were followed by 24.0 per cent on average, against 26.0 per cent after a single down year.
But sectors often fall together. Only nine of the fifteen years had both a falling sector and a rising one. In six years every sector rose, so there was nothing to rotate out of and nothing cheap to rotate into. A global spread of markets gave a rebalancer far more to work with.
A beaten up sector recovered quickly and reliably. That is an argument for patience, not for rotation.
Method and limits
Source. Annual total returns for the eleven S&P 500 sector indices, 2011 to 2025, with distributions reinvested, as published in Novel Investor's sector returns table. Cross checked against Total Money Management's own compilation: nine of eleven sectors matched exactly on which years were negative, and 27 of 30 recorded recovery figures matched within 1.5 percentage points. Verify against your own data licence before relying on any figure.
The sample is small. Only 34 of 165 sector years were negative, across a single period dominated by a long bull market. The finding that every losing run recovered within two years rests on 34 observations, not on hundreds. Treat it as suggestive rather than settled.
One claim we are not making. That every losing run was followed by a positive year is true but circular, because a run is defined as ending when a positive year arrives. The findings that carry information are how long runs last and how large the recovery year was.
What is not measured. These are calendar year index returns before fees, taxes and currency conversion to Australian dollars. Concentrating a balance into a small number of sectors is an extreme position, shown to test an idea against history rather than to suggest anyone should hold it. Past returns are not a guide to future returns.
This newsletter is for informational purposes only and does not constitute financial advice. Total Money Management | AFSL 568642.
