We are continuously bombarded with an endless supply of headlines, news, and commentary. With everything going on in the markets, I decided to close my ears, open my eyes, and simply look at the data. So, I pulled up a 50-year chart of the S & P 500 and analyzed all the bear markets. The S & P 500 is a broad Index and a great gauge to look at when it comes to market performance. Since the current bear market is still going on, we will share data from the previous bear markets of the past 50 years.
Here is what I observed about bear markets since 1972…
1– There have been 8 bear markets in the past 50 years. (A bear market is any decline of 20% or more from a prior peak). This means that every 5.5 years, markets have encountered a bear market.
2– It took an average of 335 days for the market to put in its bear market low. The S & P 500 peaked on 1/4/22. December 1, 2022 would be the 335th day of the current bear market.
3– The average drawdown in the S & P 500 has been 32% from peak to trough.
4– The S & P 500 was higher 7 out of 8 times one year after a bear market low. (*After the 2001 down market ended, the S & P was down 4.8% one year later)
5– The S & P 500 was higher 8 out 8 times three years after a bear market low.
6– The average 1-year return after a bear market ended was 44.4%. (*Largest 1-year return was 78% in 2020)
7– The average 3-year return after the previous 8 bear markets have been 60.2%. (*Largest three-year return was 105% from 3/8/2009 – 3/8/2012)
8– The S & P 500 is currently down 24% as it trades at 3640. As mentioned above, the average decline in the S & P 500 was 32% which would bring the Index down to 3276. From that level, it would take a 47% move to return to our recent highs from January. Again, the average one-year return following a bear market low is 44.4%.
9– 48 years ago, the first bear market in our study started. The S & P 500 hit a cycle low at 60.96 in October of 1974. With the S & P currently trading at 3640, the Index has returned over 5960% since.
The point of this post was NOT TO CALL A BOTTOM, but to simply look at what we could reasonably expect from this bear market based on the last 50 years. This is also why at PureVest we constantly stress the fact of being a long-term investor who is not influenced by the immediate-term results of the market. I have zero ideas as to when this bear market will end… Nobody does! But that is ok.
I do know a few things based on history, and that is:
1– Bear markets are a common occurrence
2– When going through a bear market, it will seem like the world is ending and the market is never going to recover.
3– The news will be awful in a bear market and will become positive long after the lows have been made.
4– The S & P 500 is still up an average of 11.24% per year for the previous 5 years. If you have been invested, you are most likely still doing just fine.
5– We are currently coming up on both the average drawdown and average length of a bear market cycle.
6– Bottoms can only be identified long after they have been reached
7– Bear markets create golden opportunities if you have a reasonable time frame.
8– Every one of these markets has eventually led to a new all-time high in the market
I also want to add that no two bear markets are identical, but examining past cycles can be helpful. When things get challenging, it is human nature to lose sight of the bigger picture. Throughout my career, I know I have been able to keep grounded and continue to take the long view by stopping for a minute, drowning out the noise, forgetting my emotions, and simply looking at the data. I hope this post helps to put the market climate of 2022 into perspective for you.