Let's Talk About: The Bear Market

April 5, 2023
Originally published JUNE 23, 2022

Let’s put this bear market in perspective.

On June 13, 2022, the bear market that began on January 3, 2022 was confirmed by the S&P 500.

You may ask why it took so long to confirm the bear market?

The starting point for a bear market is the earlier high for the index. In the case of the S&P 500 the earlier all-time high was recorded 1/3/22 when the index was 4778.14. When the Index declines and closes 20% or more from the earlier high the bear market is confirmed.

This bear did take more time to be confirmed than you may have expected. In fact from the date it began until its confirmation makes it the ninth longest bear market since the market crash in 1928.

There have been 26 bear markets since 1928.

Obviously, a bear market cannot end before it starts. The average length of a bear market is 289 days and we have already ticked off 166 days toward the average. If this is an average bear, we have only 123 more days until it is over. Hypothetically, if the market goes up from now at the same rate it went down, it will close above the previous high sometime in December ending this bear.  If that were to happen it could be the 9th longest of the 26 bears since 1928!

Understanding how much the average bear market declines

Perhaps more important is understanding how much the average bear declines. The answer is 35.62%.

The biggest common characteristic of bear markets is: THEY ARE ALL TEMPORARY. The most difficult part of a bear market to understand and accept is all bear markets begin to climb before there is actual confirmation of its end.

Psychologically bear markets endure months after they end. Many people insist on getting good news before they will invest again. My experience is bear markets end when the news is bad. Waiting may seem to be the right strategy, but it is not. Just as this bear began when news seemed to be okay, it will end when the news is bad.

Hypothetical growth of $10,000 invested in the S&P 500 Index from 1/1/1980 to 3/31/2021.

Some of you may be wondering what the worst-case scenario is.

The longest bear market was from 1/11/73-10/3/1974. It lasted 630 days and declined 48.2%

The steepest decline was 61.81%. The period was 11/9/1931-6/1/1932. It lasted only 205 days.

Try never to forget the most important fact is all bear markets are temporary. Investors who stay the course are more likely to achieve their long-term goals than those who sell and change course.

We will have more to say in the next few weeks. But for now, it is especially important to stay the course.

Here's an example of why I always say "stay the course"

Half of the S&P 500 index’s strongest days in the last 20 years occurred during a bear market. Another 34% of the market’s best days took place in the first two months of a bull market, long before it is clear a new bull market has begun.

We will be in a bear market, by definition, even if it were to end now. Confirmation of a new bull requires the S&P 500 to close above its earlier all-time high reached 1/3/2022 when it was 4778.14.

The S&P 500 closed 6/22/22 at 3733.89 or down about 21% from its earlier high in January. Remember the low was recorded on 6/17/22 when the market closed more than 23% down from its earlier high.

Could the bear market be over? We will know only when we get a closing price over 4778.14.  History shows we are getting closer to its end.

So now what?

Well, patience is needed and an understanding of the history of bear markets will help. However, allowing fear to drive actions is not recommended nor will rationalizing selling is okay because "this time is different". If history proves to be wrong, it will be the first time.

We are here for you through good times and bad. Lean on us and don't hesitate to reach out to your Private Wealth Manager for support.


Thomas J. Curran, Founder & Co-CEO of Curran Wealth Management

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