Revisiting Bear Market Realities  

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.
[two bears]

In May of this year, when it was clear the market had descended into bear territory, I wrote to you about what I called, “The Cold Hard Truth About Bear Markets.” 

In that issue, I told you how long bear markets typically last, how much damage they do and how these market cycles really work. Today, I want to revisit this research, because the numbers here are eerily similar to where we are at right now in this current bear market. 

The following bear market data comes to us from research conducted by Hartford Funds

  • Stocks lose 36% on average in a bear market. By contrast, stocks gain 114% on average during a bull market.
  • Bear markets are normal. There have been 26 bear markets in the S&P 500 Index since 1928. However, there also have been 27 bull markets, and stocks have risen significantly over the long term.
  • Bear markets tend to be short-lived. The average length of a bear market is 289 days, or about 9.6 months. That’s significantly shorter than the average length of a bull market, which is 991 days or 2.7 years.
  • Bear markets have been less frequent since World War II. Between 1928 and 1945, there were 12 bear markets, or one about every 1.4 years. Since 1945, there have been 14, one about every 5.4 years.
  • Half of the S&P 500 Index’s strongest days in the last 20 years occurred during a bear market. Another 34% of the market’s best days took place in the first two months of a bull market, before it was clear a bull market had begun.
  • A bear market doesn’t necessarily indicate an economic recession. There have been 26 bear markets since 1929, but only 15 recessions during that time. Bear markets often go hand in hand with a slowing economy, but a declining market doesn’t necessarily mean a recession is looming.
  • Bear markets can be painful, but overall, markets are positive a majority of the time. Of the last 92 years of market history, bear markets have comprised only about 20.6 of those years. Stated differently, stocks have been on the rise 78% of the time.

Now let’s compare those average statistics against the market as it stands today. 

  • The S&P 500 Index hit its most recent high on Jan. 3 and hit a 52-week low on Oct. 12. That’s a 25% fall from high to low over a period of 282 days.
  • The Nasdaq Composite is down 28.4% year to date.
  • The iShares MSCI EAFE ETF (EFA), an international equity benchmark, is down 17.3% year to date. 

Consider one factor here that’s skewing these numbers: the near-70% surge in energy stocks this year. If we were to exclude that outlier sector from the S&P 500 Index performance calculation, the benchmark domestic index would be down about 35% year to date, which, of course, is right in line with the historical bear market average decline of 36%. 

Moreover, if we peg the early January highs as the beginning of the current bear market, we have been in this selling environment for about 9.5 months. That’s almost precisely the average length of bear markets (9.6 months).

If you are a fan of statistical analysis, it’s hard not to acknowledge the symmetry here. 

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For the bulls, it’s easy to be encouraged by opportunity from this point forward that this statistical data represents. Of course, historical symmetry doesn’t mean the bear market is over. Yet one thing that I think we can say with absolute confidence is that if history is any harbinger of the future, we are likely very close to the end of this down-market cycle.

If you want to learn how we calculate the precise time to get back into stocks following a bear market, then I invite you to check out my Successful Investing advisory service, today. 


Wednesdays Mean Wisdom

Wednesdays mean wisdom, and that’s especially true at my podcast and lifestyle website, Way of the Renaissance Man.

This week’s insight was inspired by English-born American political activist, philosopher, political theorist and revolutionary, Thomas Paine.

You see, sometimes a view from “the outside,” i.e. a view from another perspective, is what’s really needed to clarify a situation and/or illuminate first principles. 

To find out how Paine did just that for a nascent America, check out this week’s Wednesday Wisdom at Way of the Renaissance Man.


Twain on Noise 

“Noise proves nothing. Often a hen who has merely laid an egg cackles as if she laid an asteroid.”

— Mark Twain

Now that the midterm elections are over, hopefully we’ll all get a reprieve from the noxious noise of political rhetoric. Indeed, the bombast this time around reminded me of one of my favorite quotes from the great Mark Twain. You see, in politics, and in real life, the hen that cackles the loudest is usually the one who has just laid an egg. 

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

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