However, bear markets present fantastic investing opportunities that have produced attractive returns with a little time, patience, and perspective. However, they are an inevitable part of market cycles and a much-needed cleansing of imbalances and excesses. Pessimism abounds and seems never-ending. Now that’s a lost decade.īear markets are nasty. The bursting of the dot-com bubble ranks third all-time, and the bear market during the Global Financial Crisis comes in at fourth in terms of price decline In terms of length, the worst bear market of all time occurred between May 1887 and August 1896, when the stock market’s peak-to-trough took nearly 9.5 years. ![]() We also find it interesting that two of the top 5 worst bear markets have occurred within the last 25 years. However, the subsequent recovery was also one of the best as well, rising nearly 350% over just under five years. Topping the list is the bear market that occurred during the Great Depression, which took stocks down 87%. This table lists the top worst bear markets of all time in terms of drawdowns. Without a recession, bear markets have been short-lived and shallower historically. This excludes the current bear market that started in January 2022 because it remains to be seen if a recession materializes. Out of the 26 historical bear markets, only five were considered non-recessionary. Usually, bear markets accompany an economic recession. It will take time and patience, but history shows that future returns resulting from bear markets are quite attractive. This is why bear markets are said to be great investing opportunities. The greater the fall, the larger the bounce. In other words, it shows the duration and magnitude of the following bull markets. This table shows the subsequent recoveries after a bear market troughed. We will dive deeper into that principle at a later date. This relates to our 7 th Principle-Fundamentals lead, but price matters. Instead, much of the S&P 500’s drop was from multiple compression. Often the two have not even been directionally aligned. Secondly, the peak-to-trough EPS decline seen during bear markets rarely matches the market’s price decline. This has surely been helped by a highly supportive Federal Reserve. This includes the severe downturns of the dot-com bubble (51% decline over 2.6 years) and the Global Financial Crisis (58% decline over 1.4 years). First, while the frequency of 20%+ drawdowns has been increasing, the length of the modern bear market is dropping on average. There are a couple of other interesting observations from this table. Since 2000, the S&P 500 has seen six bear markets, the highest number yet in quarter-century periods. Since 1875, there have been 26 bear markets-one less than the total bull markets. The traditional definition of a bear market is when stocks fall 20%. Why? Human ingenuity and capitalism are powerful combinations that have stood the test of time. Not only did the stock market recover from the worst drawdowns in history, but it did so in dramatic fashion. ![]() It’s seen wars, recessions, depressions, pandemics, terrorist attacks, and speculative bubbles that crashed spectacularly. After a difficult year like 2022, the second principle is rather timely-the stock market is built to recover. Carson Investment Research recently published our 8 Principles of Equities.
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