Historical Bear Markets And Their Subsequent Recoveries

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 108 years, from 1900 - 2008, 32 times, or about 1 out of every 3 years. The average length of a bear market is 367 days.

The Year After A Bear Market

In the last 75 years (i.e., 1934-2008), 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

The calculations above are based upon the raw index value of the S&P 500 and thus would not include the impact of any reinvested dividends. (source: BTN Research).

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.

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)