U.S. Stock Bear Markets and Their Subsequent Recoveries

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Bear markets are periods when the stock market declines by 20% or more from a recent peak (a 52-week high, for example). Using the S&P 500 Index as a measure, there have been 16 bear markets since 1926, averaging once every six years. They last an average of 22 months, and the market loses an average of 39%.

Despite bear markets, the stock market has been up more than it's been down. From 1950 through 2019, the S&P 500 was up 53.7% of days and down 46.3% of days, and the percentage of positive days exceeded negative days in every decade.

Historic Market Tumbles

The most recent U.S. bear market started amid the new coronavirus outbreak of 2020. The stock market crashed in March, with the Dow Jones Industrial Average and the S&P 500 Index both falling more than 20% from their 52-week highs in February.
Other bear markets, as measured by the S&P 500, include:

  • 2007-2009: down 59% over 27 months
  • 1973-1974: down 48% over 21 months
  • 1929-1932: down 86% over 34 months

For investors who sold at the bottom of these markets, these down times had a detrimental effect. And of course, those who stayed in long enough to experience a subsequent recovery were better off. Remaining focused on the long-term is important when in the middle of a bear market.

Recovering From a Bear Market

Bull markets often 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 often last for years, a significant portion of the gains typically accrues during the early months of a rally.

In the year after the "trough" of the bear markets since 1929, the S&P 500 has gained an average of 47%, according to a March 2020 report from Fidelity Investments.

For example, after the S&P 500 bottomed at 777 on Oct. 9, 2002, following a 2 ½-year bear market, the stock index then gained 15% over the following month and a total of 34% over the following year. 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.

In 2008, the S&P 500 bottomed at 683 on March 9, 2009, after declining 59%. From there it began a remarkable ascent, roughly doubling in the following 48 months. Investors who are considering moving entirely out of stocks during bear market declines might want to re-consider such action, since properly timing the beginning of a new bull market can be challenging.

Investing During a Bear Market

If you have cash, considering buying opportunities during a bear market. Historically, the S&P 500 Price to Earnings Ratio (P/E) has been notably lower during bear markets. When investors are more confident, the P/E ratio typically increases, making stock valuations higher. Professional investors love bear markets because stock prices are considered to be "on sale."

As a rule of thumb, set your investment mixture according to your risk tolerance and re-balance in order to buy low and sell high. Never cut contributions to retirement accounts during down markets. In the long run, you will benefit from buying new shares at lower prices and will achieve a lower net average purchase price.

If you're in retirement, only the portion of your money that you won't need for another five to 10 years should be in stocks. This process of allocating money according to when you'll need it is called time segmentation. You want a retirement plan that allows you to relax and not have to be concerned about the daily, monthly, or even yearly market gyrations.