History: Bear mkts & recovery time

All METARs are probably aware that today was a bad day in the markets. The S&P 500 is down 22% from its January 3, 2022 peak, officially in bear territory. Many METARs are heavily invested in stocks and intend to hold, confident that the market will bounce back as it has in the past.

https://www.nytimes.com/2022/06/13/business/bear-market-time…

**What Happens When Stock Markets Become Bears**

**Steep downturns of stocks by 20 percent or more are relatively rare, but how long they last could portend damage — for you and the economy.**
**By William P. Davis, Karl Russell and Stephen Gandel, The New York Times, June 13, 2022**

**...**
**Bear markets — when stocks decline at least 20 percent from their recent peaks — are relatively rare, and they frequently precede a recession. ...**

**Not everyone believes a recession is imminent this time, in part because there are areas of the economy that are doing better than in previous bear market moments. Unemployment is near a half-century low, and the economy has regained all but 800,000 of the 22 million jobs lost at the height of coronavirus-related lockdowns. While rising mortgage rates have begun to dampen activity, housing — generally one of the biggest sources of wealth for Americans — remains strong.** [That was also true in early 2007. – W] ...

Many people have gotten to used the stock market going up. That’s not a guarantee — especially in the near term.... [end quote]

This article has good data on the twelve (12) bear markets since 1948. “Days” in the table below is “Duration in days from peak to trough.” Notice the very long duration between the previous high and the trough in some of these bear markets. The two great bear markets associated with inflation (1973 and 1980) each lasted over 600 days from peak to trough.

“Days from trough to new record high” shows how long it takes to make the investor whole after the bear market. The 1973 bear market took over 2,000 days (almost 6 years) to make a new high.

This is a heads-up for METARs who think we are near a bottom or who think that the market will recover soon. The Fed has stated that they want to maintain a “neutral” fed funds rate from now on…a far cry from the 20 years of excess stimulus from the Fed. This is a true trend change. It won’t reach equilibrium for many days. And it may not reach new highs until after the next recession, which could take years.


Peak            Trough        %Decline  Days    Next high  Days from trough 
                                                           to new record high
06/15/48	06/13/49	–20.6	363	Sept. 22, 1954	1927

07/15/57	10/22/57	–20.7	99	Sept. 24, 1958	337

12/12/61	06/26/62	–28.0	196	Sept. 3, 1963	434

02/09/66	10/07/66	–22.2	240	05/04/67	209

11/29/68	05/26/70	–36.1	543	03/06/72	650

01/11/73	10/03/74	–48.2	630	07/17/80	2114

11/28/80	08/12/82	–27.1	622	11/03/82	83

08/25/87	12/04/87	–33.5	101	07/26/89	600

03/24/00	10/09/02	–49.1	929	05/30/07	1694

10/09/07	03/09/09	–56.8	517	03/28/13	1480

02/19/20	03/23/20	–33.9	33	08/18/20	148

01/03/22	05/20/22				 So far, 161

Wendy

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Monetary policy will be very close to entirely off the table.

Wes Moss is a financial planner who has written some books on retirement. He has a recent podcast in which he discusses recovery from bear markets. His research on the last 12 bears (actually he included declines of 19%) revealed the average length of the decline was about a year and a half. If the decline coincides with a recession the average length was two and a half years.

Once a true bottom is achieved (only knowable after the fact) the initial recovery is violent to the upside—30% of the recovery happens in the first 30 days. If you are not invested when the recovery starts you may well miss out on a very substantial part of the gains. Of course, as Wendy’s chart demonstrates, it can take many more months to regain the previous high, but you don’t want to miss out on a third of the recovery.

So, to my thinking, if one has sold out and is waiting to be sure that the market has seen the bottom, then there is a real possibility that they will miss the very rapid first part of a recovery and harm their long term capital appreciation. Like they say, no one rings a bell at the bottom so you know when to get back in.

https://www.wesmoss.com/podcasts/105-the-violence-of-market-…

Start about 3:40 in the podcast

tsimi

1 Like

tsimi posts

So, to my thinking, if one has sold out and is waiting to be sure that the market has seen the bottom, then there is a real possibility that they will miss the very rapid first part of a recovery and harm their long term capital appreciation

I made that mistake back in 1987 in the Black Monday crash where the DOW lost 22.6% in one day. Stayed out of the market for 2 years after. I’m about 25% poorer today as a result.

Fortunately I learned my lesson at a relatively young age (31) and have remained invested ever since. My focus turned to “minimizing the skim” of fees, commissions, trading costs, and taxes, while letting the long term stock market returns compound unburdened. It doesn’t make for interesting cocktail party chatter, but it’s proved to be remarkably sound financial planning.

intercst

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Three things to keep in mind with looking at the recovery time;

(I do not know the math they used.)

  1. To hit a real new high you you would need to adjust for inflation.

  2. Dividends may not be included if you are just looking at an index value.

  3. That chart seems to just be looking at US markets. There are lots of markets that get into a bear market and take a very long time to recover, or never recover.

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<Once a true bottom is achieved (only knowable after the fact) the initial recovery is violent to the upside—30% of the recovery happens in the first 30 days. If you are not invested when the recovery starts you may well miss out on a very substantial part of the gains. Of course, as Wendy’s chart demonstrates, it can take many more months to regain the previous high, but you don’t want to miss out on a third of the recovery.>

The 1973 bear market had several “bear traps” where the market rose 10% and then fell again. The “mungofitch 99 day rule” requires 99 trading days of new highs, which would prevent being caught in a bear trap. It would also prevent the 30 day rocket rally you describe.

I don’t care if I miss a third of the recovery if I avoid the stress of bear traps. That’s my personality. Everyone is different.

Wendy

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Once a true bottom is achieved (only knowable after the fact)

Because the bottom is “only knowable after the fact” one needs to remain invested instead of going to cash but you can only do that with stocks that you feel secure will bounce back. And to stay invested you also have to have a reserve cash fund to outlast the bear market, a fund that you must feed during the bull market phase.

It’s the story of the three little pigs! Build a sturdy portfolio!

The Captain

https://www.youtube.com/watch?v=-gdcgnSrUvU

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Thank you for recommending this post to our Best of feature.

My focus turned to “minimizing the skim” of fees, commissions, trading costs, and taxes, while letting the long term stock market returns compound unburdened. It doesn’t make for interesting cocktail party chatter, but it’s proved to be remarkably sound financial planning.

Tru dat!

I do it with dividend paying stocks.

PS
That needed to be said again, so I did :wink:

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Because the FED wont be bailing the markets out this time this bottom could be close to a year long.

His research on the last 12 bears (actually he included declines of 19%) revealed the average length of the decline was about a year and a half.

Funny thing about averages is how they can mislead or hide useful information.

Put your feet in a freezer and your head in an oven and, on average, you are at a totally comfortable temperature!

Or, average these sets of numbers:
a) 2, 3, 4, 5, 6, 7, 100. ave = 18.1, no where near any of the values (median is 5)
b) 1, 2, 3, 4, 99, 100, 101. ave = 44.2, no where near any of the values (median is 4 but close to 99)

IMO, it is best to look at a nicely plotted graph of the numbers to confirm the math of average isn’t tricking you. Median is generally better or good to see as well, but no reporter is ever going to use such a technical term as this.

Mike

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IMO, it is best to look at a nicely plotted graph of the numbers to confirm the math of average isn’t tricking you. Median is generally better or good to see as well, but no reporter is ever going to use such a technical term as this.

A good argument in favor of chart watching!

NASDAQ still above the mean (10,099.77)?
https://invest.kleinnet.com/bmw1/stats40/^IXIC.html

or already below the mean (12,562.76)?
https://invest.kleinnet.com/bmw1/stats16/^IXIC.html

What’s the real mean, 12,562.76 or 10,099.77 or something else?

Statisticians are as good at telling fairy tales as Hans Christian Andersen…

https://en.wikipedia.org/wiki/Hans_Christian_Andersen

The Captain

GOOD GRIEF! NASDAQ still has a lot more to fall! Mean at 8,776.23
https://invest.kleinnet.com/bmw1/stats25/^IXIC.html

Mathematical precision can be very misleading

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Link problems! This one works.

GOOD GRIEF! NASDAQ still has a lot more to fall! Mean at 8,776.23
https://invest.kleinnet.com/bmw1/stats25/^IXIC.html

The Captain