The question every investor wants to know is when will the bear market end, and just how bad will it decline? In this post I’ll dig into the history of bear markets and how the current one could play out.

For some background, bear markets are when the stock market experiences prolonged price declines. Typically defined by a decline of at least 20% from its recent peak. The stock market officially entered a bear market on June 13th of this year.

Looking at previous bear markets can help put things into perspective and give us an idea on what to expect. The figure below shows every bear market since 1950 with the declines and how many days they lasted:

Bear Markets Since 1950

The average bear market since 1950 has seen U.S. stocks lose an average of about 29%. That suggests if the current bear market ends up around the average, stocks may drop another 5% or so. The average duration of 314 days would put us out to November.

However, based on current economic conditions, one could make the case that this bear market will be shallower than average. Consumer balance sheets and job markets are still in good shape. Interest rates have risen quickly but are still low by historical standards.

The recent decline could be seen as a buying opportunity depending on your time horizon. Stocks have historically done well after entering a bear market, up an average of 15% a year later.

S&P 500 Index Returns

At the same time, that doesn’t mean stocks can’t go down further in the short term. The length of the current bear market probably depends on how long inflation remains elevated, and how it will impact the Fed’s rate hiking campaign. If a full-blown crisis such as 2000-02 and 2008-09 can be avoided, this bear market may bottom soon.

Bottom Line
Bear markets are never fun to live through because no one likes to see their portfolio go down in value. Successfully navigating a bear market requires patience and a good handle of your time horizon. In hindsight, every bear market throughout history was a buying opportunity.

George Maroudas


Twitter @ChicagoAdvisor

Sources and Disclaimers:

Stock market represented by the S&P 500 index.
Bear markets are including declines of 19%-20%.
Bear Market Definition from Investopedia
Bear Markets Since 1950 from ChicagoAdvisor
Stock performance after entering a bear market from LPL Financial

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Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy ensures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. The Standard & Poor’s Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.