The US market continues to remain close to its historical highs, while market analysts have long been talking about an impending crisis and a global reversal of the trend downward. It's time to brush up on the key facts about the bear market.
1. The rule of 20%
Growth waves in the market are replaced by corrections and vice versa. How to distinguish a normal correction from a full-fledged bear market, which can lead to significant losses? The first indicator that you should pay attention to is the depth of the correction itself. According to the classic rule of technical analysis, a “bear” market can be identified after falling below 20% from the level of previous local maximums. Similarly, the bull market begins after growing more than 20% of the lows.
2. The “bearish” market is normal
Over the past 90 years, the US S&P 500 has recorded 25 bear markets. A decline in stocks after growth is normal and inevitable. However, a recovery is also inevitable — all bear markets ended with growth and renewal of the peaks. The last growth cycle for the S & P500 we can observe to this day.
3. The average loss is 36% during the bear market
The last “bearish” trend was in 2008-2009. During this period, the US S&P 500 index fell significantly stronger than the average historic value, immediately by 57%. At the same time, in the course of the bull market, the index grows by an average of 108%.
4. Stocks are falling rapidly, but not for long
The average duration of a bear market is 299 days or about 10 months. This is significantly less than the average duration of a bull market, which is 989 days or 2.7 years.
5. “Bear” market occurs every 3.6 years
This is the average frequency of “bear” markets observed in history. The longest period between the two “bear” markets could be observed from 1987 to 2000. Three years later, if the trend does not reverse, the current “bull” market can break this record.
6. Since the Second World War, falls have become less common
Of the observed 25 "bear" markets, 12 occurred in the interval between 1928 and 1945. The average frequency in this period is 1.4 years compared to 5.6 years in subsequent decades.
7. Almost half of the strongest days of the S&P 500 fell on the “bear” markets
48% of the best days of the American index fell on periods of global sales. Another 28% came at the beginning of a new “bull” market and occurred in its first two days. In other words, a powerful “bullish” day candle during the “bear” market only in a third of cases (37%) speaks of a trend reversal, and in the rest of the period it is followed by another update of the lows.
8. Market decline is not always associated with real problems in the economy
Over the 90-year period since 1929, there were 25 “bear” markets, but there were only 14 economic recessions. Indeed, a fall in stocks is often associated with economic problems, but there are also cases where market sales are not a sign of a recession in the economy.
9. On the investment horizon of 30 years, you will inevitably meet about 8-9 “bear” markets
A fall in portfolio value is always painful for an investor. However, it should be understood that a bear market is inevitable and it is necessary to be mentally prepared for such a development of events. In the end, in paragraph 2. we already noted that the bear market will inevitably end with growth. Remember this during periods of market sales.
10. Despite the inevitability of “bear” markets, most of the time stocks rise
For the considered period of time from 1929 until today, the US stock market spent only about 20 years in a “bearish” trend. Thus, about 77% of the time stocks are growing, bringing profit to their investors.
