Bear Markets Come and Go
Submitted by Madison Planning Group on March 24th, 2020
The longest bull market in history lasted almost 11 years before coronavirus fears and the realities of a seriously disrupted U.S. economy brought it to an end.
If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical. There have been 10 bear markets (prior to this one) since 1950, and the market has recovered eventually every time.
Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are increases of 20% or more from the bear market low. But there is no official declaration, so in some cases there are different interpretations regarding when these cycles begin and end.
On average, bull markets lasted longer (1,955 days) than bear markets (431 days) over this period, and the average bull market advance (172.0%) was greater than the average bear market decline (-34.2%).
| Bear Markets Since 1950 | Calendar Days to Bottom | US Stock Market Decline (S&P 500 Index) |
|---|---|---|
| Aug 1956 - Oct 1957 | 446 | -21.5% |
| Dec 1961 - June 1962 | 196 | -28.0% |
| Feb 1966 - Oct 1966 | 240 | -22.2% |
| Nov 1968 - May 1970 | 543 | -36.1% |
| Jan 1973 - Oct 1974 | 630 | -48.2% |
| Nov 1980 - Aug 1982 | 622 | -27.1% |
| Aug 1987 - Dec 1987 | 101 | -33.5% |
| July 1990 - Oct 1990 | 87 | -19.9%* |
| March 2000 - Oct 2002 | 929 | -49.1% |
| Oct 2007 - March 2009 | 517 | -56.8% |
*The intraday low marked a decline of -20.2%, so this cycle is often considered a bear market.
The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will. During the worst downturns, there were short-term rallies and buying opportunities. And in some cases, people have profited over time by investing carefully just when things seemed bleakest.
If you're reconsidering your current investment strategy, a volatile market is probably the worst time to turn your portfolio inside out. Dramatic price swings can magnify the impact of a wholesale restructuring if the timing of that move is a little off. A well-thought-out asset allocation and diversification strategy is still the fundamental basis of good investment planning. Changes in your portfolio don't necessarily need to happen all at once. Try not to let fear derail your long-term goals.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.
The S&P 500 is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary.
Source: Yahoo! Finance, 2020 (data for the period 6/13/1949 to 3/12/2020)
