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Expand chart
Reproduced from FactSet; Chart: Axios Visuals

History says the stock market could be due for a big selloff.

Why it matters: Historically, bull markets rarely happen in the form of a smooth line, up and to the right. And so, long-term investors shouldn’t be surprised to see a period of poor returns.

By the numbers: The S&P 500 bottomed on March 23, 2020, which means we’re three months into year two of the bull market.

  • Since 1945, the average bull market saw a max drawdown — or its largest peak-to-trough selloff — of 10% during year two, according to BMO Capital Markets.
  • These drawdowns ranged from down 5.1% to 16%.
  • Since March 23, 2021, the S&P has seen a max drawdown of just 4%.

What they’re saying: "Look at last year at this time," LPL Financial’s chief market strategist Ryan Detrick tells Axios. "We were in the midst of a five-month win streak, yet saw millions of people lose their jobs."

  • "The stock market is all about the future and all of that bad news was priced into the pie.”
  • “Year two is the opposite, as stocks sport weaker returns, while the economy is actually much stronger. But again, much of the recovery is priced into things, so it is harder for stocks to surprise to the upside.”

Yes, but: "The good news is the second year of every single bull market since World War II has seen the S&P 500 climb higher," Detrick wrote in a note.

  • The average year two generated a strong 12.6% return.

Go deeper

Stock deals are hot in pandemic-era merger spree

Illustration: Annelise Capossela/Axios

Those turbocharged stock gains are coming in handy. More frequently, companies are using their shares as the hot currency to snap up other firms.

Why it matters: There’s been an uptick in the number of stock M&A transactions during this year's deal frenzy, helped by soaring valuations. But cash still looms large — and the growth in stock deals may be fleeting amid market volatility.

Parents in Michigan, Virginia sue AG over action on school board threats

U.S. Attorney General Merrick Garland during an October news conference in Mexico City. Photo: Hector Vivas/Getty Images

A group of parents in Michigan and Virginia accused Attorney General Merrick Garland in a federal lawsuit Tuesday of trying to "criminalize" free speech by directing law enforcement to review threats against school staff.

Why it matters: The lawsuit, filed by the conservative American Freedom Law Center on behalf of the parents in two school districts, accuses Garland of seeking to suppress free speech in his memorandum directing federal authorities to counter the threats spike.

Reading the fundraising tea leaves in Virginia

Terry McAuliffe (left) and Glenn Youngkin speak during a debate last month. Photo: Win McNamee/Getty Images

Democrat Terry McAuliffe may be trouncing Glenn Youngkin in fundraising, but when it comes to dollars from donors in Virginia — the state where they're battling to become governor — the Republican has the edge.

Why it matters: With tight polls between the two gubernatorial candidates less than two weeks before Election Day, the parties are also looking to fundraising as a predictor of success.