Historical Stocks Bear and Bull Markets Compared
Stock-Markets / US Stock Markets Aug 25, 2009 - 07:40 AM GMT
Nilus Mattive writes: It seems as though just about everyone has now completely written off the bear market as “so last quarter.” Isn’t it amazing what a couple months of upticks can do?
Don’t get me wrong. I’m as happy as anyone that this rally has had staying power. It means my favorite dividend stocks are increasing in value!
But I also like to keep the markets in perspective. That’s why today — while everyone seems more focused on the immediate gains to be had — I want to revisit the bear market we just went through and compare it to past periods of stock weakness.
Plus, I’ll also tell you how this current rally fits alongside past market recoveries. And I’ll show you how much more upside we should expect.
“Wait, Are You Saying the Bear Market Is Officially Over Then?”
That’s probably your first question. And my answer is that — yes, technically at least — the bear market in stocks is over.
I say that because the standard definition of a bear or bull is a 20 percent change off the market’s previous high or low.
Based on that definition, the most recent bear market began on July 9, 2008, when the S&P 500 index closed 20.5 percent lower than its high of 1565.15 made on October 9, 2007.
Then, on March 6, 2009, it reached an intraday low of 666.79. If we’re going by closing data, however, the previous day — March 5 — was the actual low at 682.55.
So from the October 9, 2007, high through the March 5, 2009, close, the bear market in the S&P 500 produced a 56.4 percent loss. And it lasted about 17 months.
How does that stack up to past bears? Take a look and see:
Bear Markets |
|||||
Start |
End |
Start Price |
End Price |
Months |
S&P 500 Change |
03/06/37 |
04/29/42 |
18.68 |
7.47 |
62 |
-60% |
05/29/46 |
06/14/49 |
19.25 |
13.55 |
37 |
-30% |
08/02/56 |
10/22/57 |
49.64 |
38.98 |
45 |
-21% |
12/12/61 |
06/27/62 |
97.62 |
52.32 |
6 |
-28% |
02/09/66 |
10/07/66 |
94.06 |
73.20 |
8 |
-22% |
11/29/68 |
05/26/70 |
108.37 |
69.29 |
18 |
-36% |
01/11/73 |
10/03/74 |
120.24 |
62.28 |
21 |
-48% |
11/28/80 |
08/12/82 |
140.52 |
102.42 |
20 |
-27% |
08/25/87 |
12/04/87 |
336.77 |
223.92 |
3 |
-34% |
07/16/90 |
10/11/90 |
368.95 |
295.46 |
3 |
-20% |
03/24/00 |
10/09/02 |
1527.46 |
776.76 |
31 |
-49% |
Average |
20 |
-34% |
|||
Source: Standard & Poor’s Index Services
As you can see, stocks recently took a drubbing that was far worse than nearly any past bear market, except for the one in the early 30s. And even that period wasn’t a heck of a lot worse.
On the other hand, you can see that this bear was actually shorter than is typical.
I chalk that up to the massive interventions our government conducted. (Whether we should agree with those interventions is beside the point.)
Okay, But Why Am I Also Saying a New Bull Has Begun?
Again, it all comes down to standard definitions. Since that low on March 5, 2009 … the S&P 500 has rallied far more than 20 percent, which is a bull market.
In fact, through yesterday’s close … this bull has produced a very respectable gain of 50.3 percent.
Let’s see how that compares to historical bulls…
Bull Markets |
|||||
Start |
End |
Start Price |
End Price |
Months |
S&P 500 Change |
06/01/32 |
03/06/37 |
4.40 |
18.68 |
57 |
325% |
04/29/42 |
05/29/46 |
7.47 |
19.25 |
49 |
158% |
06/14/49 |
08/02/56 |
13.55 |
49.64 |
86 |
266% |
10/22/57 |
12/12/61 |
38.98 |
72.64 |
50 |
86% |
06/27/62 |
02/09/66 |
52.32 |
94.06 |
43 |
80% |
10/07/66 |
11/29/68 |
73.20 |
108.37 |
26 |
48% |
05/26/70 |
01/11/73 |
69.29 |
120.24 |
32 |
74% |
10/03/74 |
11/28/80 |
62.28 |
140.52 |
74 |
126% |
08/12/82 |
08/25/87 |
102.42 |
336.77 |
60 |
229% |
12/04/87 |
07/16/90 |
223.92 |
368.95 |
31 |
65% |
10/11/90 |
03/24/00 |
295.46 |
1527.46 |
113 |
417% |
10/09/02 |
10/09/07 |
776.76 |
1565.12 |
60 |
101% |
Average |
57 |
164% |
|||
Source: Standard & Poor’s Index Services
As you can see, the average bull market has handed investors a 164 percent gain.
If you apply that to the closing low of 682.55, you’ll get an S&P 500 of 1801.93!
That would mean stock investors stand to make another 75.7 percent from current levels strictly based on averages.
Of Course, Nothing Is Guaranteed! And Let’s Not Forget Where We Are Today …
Obviously, I’m just having a little fun with numbers here. There’s no guarantee that we’ll see stocks move higher at all.
In fact, it’s important to remember that "bull" and "bear" markets are just arbitrary ways of slicing and dicing the market. They’re snapshots with contrived parameters. And they’re more indicative of what a trader could have gotten with perfect foresight than what the typical stock investor earns.
Case in point: Unless we see another MAJOR rally between now and December, the S&P 500 will have posted a substantial loss for the entire decade.
Most investors would simply call THAT one big bear market!
Never forget that our economy is only beginning to show signs of a recovery.
We continue to face high unemployment … a fragile lending system … and a very important psychological shift on the part of consumers.
The bear may be officially dead for now … but he can return just as swiftly and without much warning.
This is precisely why I urge you not to place too much importance on short-term market moves or worry that you missed out on substantial gains during this rally.
It’s always possible to time things more perfectly. And it’s even easier to take on more risk when everything is headed higher.
But I’d much rather see you keep a cool head and invest in companies that pay out steadily rising dividends.
Sure, they still appreciate substantially when the market rises. However, they also hand you solid income even when stocks drift lower or trade sideways for months or years at a time.
Best wishes,
Nilus
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