What History Says About Bear Markets

What History Says About Bear Markets

After a historic tear, the U.S. stock market has officially entered bear market territory (defined as a 20% decline from the prior peak) after Coronavirus fears have rocked the global economy. As of writing, the Dow Jones is now down 23% from the beginning of the year, having witnessed the fastest 20% drop in the history of the index. The S&P 500 is down roughly the same.

Miraculously, liberals are finally willing to attribute the stock market’s moves to President Donald Trump instead of former President Barack Obama. And obviously, none of them will mention that for as much as U.S. markets have fallen, they haven’t fallen to the extent that global markets have.

That aside, it’s useful to give some context amidst the panic.

How Have Past Bear Markets Played Out?

The markets have experienced eight bear markets since the 1960s, roughly one ever 7.5 years – or once ever 4.6 years if you include “near” bear markets (such as a 19% drop). On average, event driven bear markets have recovered in fifteen months.

It seems that we were overdue for a bear market having gone eleven years without one – but the markets would’ve likely continued chugging along in absence of the Coronavirus pandemic.

In those past bear markets (or near bear markets), the average decline before stocks rebounded was 31%.

What About Stock Declines Due to Virus Outbreaks?

Below is charted the market’s immediate reactions during various virus emergencies. Note that their Coronavirus market reaction data is now out of date, as the CNBC’s data is as of February 24th. The S&P has now declined approximately 21% since January.

And how quickly markets have recovered one month, and six months out, is charted below:

The SARS and Zika outbreaks brought about the most drastic market declines (nearly) on-par with the Coronavirus related declines. In the case of SARS the markets rebounded from a 12.8% decline to a 21.5% gain after six months, while losses from Zika were cut from a 12.9% decline to only a 0.6% decline after six months.

An obvious disclaimer – the past is no guarantee of the future when it comes to the markets. The circumstances behind every bear market are different, as are the responses to every disease outbreak. This time could always be different – but this is what has happened previously.

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