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Bear Markets - and Their Subsequent Recoveries

Statistics and Recovery Times for Historical Bear Markets

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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:

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. 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)

 

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