As of the close on Wednesday the US Market, the S&P 500 is now down almost 17% from all-time highs. The Canadian market, TSX/S&P is down about 4%.

The technical definition of a bear market is down 20% so we are getting close for US stocks.

It’s been a couple of years since we’ve experienced a bear market so it’s probably a good time for a refresher:

  • Bear markets are normal.
  • They can be painful.
  • The reasons are always different but the emotions are the same.
  • No one knows how long they will last.
  • They do come to an end eventually.

The length of the current iteration likely depends on how long inflation stays elevated, how resolute the Bank of Canada and Federal Reserve are with tighter monetary policy and if these two factors combine to throw the economy into a recession.

Things could surely get worse before they get better or this could all end with one sentence from the chairman of the Federal Reserve, Jerome Powell if he decides to ease up on raising interest rates. The bottom of the market will look obvious in hindsight but, as always, predicting these things in real-time is not easy.

Historical comparisons cannot provide the blueprint for the present situation but they can help put things into perspective in terms of the length and duration of past bear markets.

Here’s a look at every bear market for the S&P 500 going back to 1950 that shows the drawdown, peak-to-trough number of days they lasted, and how long it took for the S&P to reclaim  previous levels:

Source: iA Private Wealth

Over 15 bear markets, the average downturn is a loss of 30%, lasting just under a year to reach the bottom and taking a little more than one-and-a-half years to break even.

The last three bear markets have all been relatively short-lived. Eight out of the 15 bear markets broke even in under a year. The worst-case scenario is the 1973-1974, 2000-2002, and 2007-2009 crashes which all took more than four years to recover.

No one is sure how this one will play out.

The bad thing about bear markets is you never know how bad they’re going to get because human beings can panic under duress.

The good thing about bear markets is they come to an end and offer the opportunity to buy at lower prices.

Successfully navigating a bear market requires patience and a good handle on your emotions and time horizon.

Please contact me if you have any concerns.


Leave a Reply

Call the Right Direction Financial office