Frequency of Bear Markets
Bear markets, defined as a period where the market goes down 20% or more from peak to trough, happen frequently; in the last 113 years, from 1900 - 2013, 32 times, or about 1 out of every 3.5 years. The average length of a bear market is 367 days.
The Year After a Bear Market
In the last 79 years (i.e., 1934-2013), as measured by calendar year, the S&P 500 stock index has suffered total return losses of at least 20% in four different years, the most recent was 2008’s 37.0% decline. In the year after the three previous 20%+ tumbles, the index gained an average of +32% (source: BTN Research).
Despite Bear Markets, Time Is On Your Side
The split between “up” and “down” time periods for the S&P 500 over the last 50 years (1958-2008) as measured by:
- Days: 53% “up” and 47% “down.”
- Months: 58% up, 42% down
- Quarters: 63% up, 37% down
- Years: 72% up, 28% down
- 5 Year Rolling Time Periods: 76% up, 24% down
- 10 Year Rolling Time Periods: 88% up, 12% down
From the Bottom of the 2002 Bear Market
After the S&P 500 bottomed at 777 on 10/09/02 following a 2 ½ year bear market, the stock index gained +15.2% (total return) over the subsequent 1-month period (source: BTN Research).
The S&P 500 gained +101% over the subsequent 5-year period, peaking on 10/09/07. In this chart of the 2002 bear market you can see graphically how insignificant the event looked when viewed over a longer time horizon.
From the Bottom of the 2009 Bear Market
After declining by nearly 40% in 2008, the S&P 500 continued its drop until it bottomed at 683 on March 9, 2009. From there it began a remarkable ascent, climbing over 100% in the following 48 months.
Recovering From Bear Markets
- Bull markets follow bear markets. There have been 14 bull markets (defined as an increase of 20% or more in stock prices) since 1930.
- While bull markets have often lasted for multi-year periods, a significant portion of the gains have typically accrued during the early months of a bull market rally.
- Investors who flee to cash during bear markets should keep in mind the potential cost of missing the early stages of a market recovery, which historically have provided the largest percentage of returns per time invested.
- By definition, new bull markets are not known until the stock market has already increased 20%. Investors who are prone to move entirely out of stocks during bear market declines (a drop of more than 20%) might want to re-consider such action, as attempting to properly time the beginning of a new bull market can be challenging.
(Source: Fidelity Investments)