2018 was a record setting year for investors of all kinds. Like all things great, a reset of expectations is needed from time to time. Here’s what you need to know about the dreaded bear market with a brief look at history.
20%: Market cycles are measured from peak (High) to trough (Low), so a stock index officially reaches bear market territory when the closing price drops at least 20% from its most recent high. A new bull market begins when the closing price gains 20% from its low.
36%: That’s how much stocks lose, on average in a bear market.1During a bull market, stocks gain more than 108% on average.
Bear markets are common. There have been 25 bear markets in the S&P 500 Index2in the last 90 years. However, there have also been 26 bull markets—and stocks have risen over time.
6 years: That’s the long-term average frequency between bear markets. The longest the market has gone without a bear market was from December 1987 until the dot-com crash in March 2000.
(Side Note) 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. In the 73 years since the war ended, there have been 13—one about every 5.6 years.
299 Days: Bear markets tend to be short-lived. The average length of a bear market is about 10 months. That’s significantly shorter than the average length of a bull market, which is 989 days or 2.7 years.
Bear ≠ Recession: A bear market doesn’t translate into an economic recession. There have been 25 bear markets since 1929, but only 14 recessions during that time.4 Bear markets often go hand in hand with a slowing economy, but a declining market doesn’t necessarily mean a recession is looming.
14 Times: Assuming a 50-year investment horizon, you can expect to experience about 14 bear markets. It can be difficult to watch your portfolio dip during these periods, it’s important to keep in mind that downturns are a temporary part of the investing process.
77%: Bear markets can be painful, but overall, markets are positive a majority of the time. Over the last 90 years of market history, bear markets have made up about 20 of those years. Put another way, stocks have been on the rise 77% of the time.
Tough Timing: Nearly half (48%) of the S&P 500 Index’s strongest days occurred during a bear market. Another 28% 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.3 A better way to weather a downturn could be to stay invested, or well diversified, since it’s difficult to time the market’s recovery.
When Bear markets Call
S&P 500 Index declines of 20% or more, 2/20/1928 – 12/31/2018
|
Start and End Date |
% Price Decline |
Length in Days |
|
9/7/1929 – 11/13/1929 |
-44.67 |
67 |
|
4/10/1930 – 12/16/1930 |
-44.29 |
250 |
|
2/24/1931 – 6/2/1931 |
-32.86 |
98 |
|
6/27/1931 – 10/5/1931 |
-43.1 |
100 |
|
11/9/1931 – 6/1/1932 |
-61.81 |
205 |
|
9/7/1932 – 2/27/1933 |
-40.6 |
173 |
|
7/18/1933 – 10/21/1933 |
-29.75 |
95 |
|
2/6/1934 – 3/14/1935 |
-31.81 |
401 |
|
3/6/1937 – 3/31/1938 |
-54.5 |
390 |
|
11/9/1938 – 4/8/1939 |
-26.18 |
150 |
|
10/25/1939 – 6/10/1940 |
-31.95 |
229 |
|
11/9/1940 – 4/28/1942 |
-34.47 |
535 |
|
5/29/1946 – 5/17/1947 |
-28.78 |
353 |
|
6/15/1948 – 6/13/1949 |
-20.57 |
363 |
|
8/2/1956 – 10/22/1957 |
-21.63 |
446 |
|
12/12/1961 – 6/26/1962 |
-27.97 |
196 |
|
2/9/1966 – 10/7/1966 |
-22.18 |
240 |
|
11/29/1968 – 5/26/1970 |
-36.06 |
543 |
|
1/11/1973 – 10/3/1974 |
-48.2 |
630 |
|
11/28/1980 – 8/12/1982 |
-27.11 |
622 |
|
8/25/1987 – 12/4/1987 |
-33.51 |
101 |
|
3/24/2000 – 9/21/2001 |
-36.77 |
546 |
|
1/4/2002 – 10/9/2002 |
-33.75 |
278 |
|
10/9/2007 – 11/20/2008 |
-51.93 |
408 |
|
1/6/2009 – 3/9/2009 |
-27.62 |
62 |
|
Average |
-35.68 |
299 |
Source: Ned Davis Research, 1/19. Past performance is no guarantee of future results. Investors cannot directly invest in an index.
Curious how a Bear Market may impact your financial plan? Contact us for a free strategy session or visit ProsperiFi.com for more intelligent financial insights.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There can be no guarantee that strategies promoted will be successful
1 Source for bear/bull market stats is Ned Davis Research as of 12/31/18.
2 The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
3 Source: Ned Davis Research, 2/18. Time period referenced is 1/2/1998-12/31/2017.
4 Source: National Bureau of Economic Research, 1/19
Investing involves risk, including the possible loss of principal. • Diversification does not ensure a profit or protect against a loss in declining market.
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