Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Stocks Bear Market Rally or New Bull Market?

Stock-Markets / Investing 2009 Feb 04, 2009 - 01:46 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleNilus Mattive writes: The S&P 500 lost 8.57% last month, which was the worst January on record. Even worse, a January loss for the index has typically meant a full-year loss for the market about 75% of the time.

The big question right now is whether we will see another fall to the lows made back in November. And the bigger question is whether we will go even lower than that.


If the answer is “yes,” it will be a rare event indeed. In fact …

Only Twice Before Have Stocks Ever Rallied More Than 20%, Then Broken Bear Lows

Technically, stocks began a new bull market on December 8, 2008.

Yes, you read that right. The market's December 8 close represented a 21% gain from the low hit on November 20. And the technical definition of a bull market is a 20% rise in prices.

Okay, I would hardly call this a new bull market. But we cannot yet call it a bear market rally, either …

Since World War II, the S&P 500 has only ever posted a 20%+ rally from a bear market low one other time. It happened earlier this decade. (The other time we saw a 20%+ bear market rally was back around the time of the Great Depression.)

In every other historical case, the market's initial low held when stocks subsequently gained at least 20%.

To anyone sitting on big losses, that's of little consolation right now. Moreover, these are certainly extreme times, precisely the times that prove exceptions to rules.

The fact that the S&P 500 wasn't able to break into the 1,000 range during its early January surge was discouraging, and suggests a retest of the lows could be in the cards.

This has been the worst bear market since the 1930s ...
This has been the worst bear market since the 1930s …

So, How Bad Have the Worst Bears Been?

As you'd expect, the worst two bear markets in the S&P 500 both occurred in the 1930s:

The first, from 1929-1932, was horribly severe — sending stocks down 86%.

The second happened between 1937 and 1938, producing a 54% loss for stocks from peak to trough.

Let's compare those two precedents to this cycle …

The S&P 500's November low was 752, which amounted to a peak-to-trough loss of 52%.

That makes the current downturn the third worst in modern stock market history, but not as bad as either of the Great Depression bears.

On the other hand, this decline took just 13 months. Typically, a market loss of 40%+ takes 21 months. So the speed of the decline was atypically fast.

Another interesting fact: The drop to 752 took us a couple percentage points past the starting point of the last bull market. In other words, it erased every single penny of the 2002-2007 bull market's advance!

Brutal 2008 wipes away every penny gained since 2002 ...

According to S&P, the average bear market only retraces 73% of the previous bull market.

Conclusion: Based on history, things could get much worse. However, the current downturn has already been deeper and faster than nearly every other bear market in the books.

Now, a little good news …

When the Carnage Is Over, Investors Can Expect Swift and Substantial Gains

The average first year of a bull market has produced a gain of 46% for the S&P 500. So if we base that on the 752 low, we arrive at 1,052 on the “500.”

Looking farther out, the average bull market produces an overall gain of 164% over an average of 57 months. Applying that typical gain to the low of 752 would put the index back at 1,233.

And again, I'll reiterate that since these are anything but average times, everything will likely be well above the norms.

I'm not going to pull punches: Anyone who invested everything at the top of the market could be waiting a long time for a full recovery of their capital.

But for anyone who's steadily building a diversified portfolio of quality companies, and especially for anyone pursuing dollar-cost averaging strategies (including dividend reinvestment) throughout this downturn, the odds of a solid return are still very likely.

Best wishes,

Nilus

P.S. For all the reasons I just outlined, now is the right time to build a solid portfolio of dividend-paying stocks. My newsletter, Dividend Superstars will help you do that … and a whole lot more. And at just $39 for 12 information-packed issues, it's a heck of a deal! Click here to start your no-risk subscription right now.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules