Go East For A Bull Market

This bear market has made up for its relatively shallow depth with its historic duration. The S&P 500 reached a high of 4,818 in December, 2021 before plunging to 3,602 in September 2022—a decline of approximately 25%, certainly sizable but nothing compared to the 50% declines after the 2000 dotcom collapse or the 2008 financial crisis. It then climbed in July to 4,615, just 4% below the 2021 high. Some declared the bear market over. But like so many scourges of the past several years (viruses, demagogues, and environmental chaos), this one has proven enduring. The S&P plunged back down to 4,288, still 11% below its original high.

Very few bear markets take longer than 20 months to break even. Aside from the colossal bear markets mentioned above, and the 1973–1974 bear market (which took 46 months), most bears revert to their original highs within a year or two. Especially when a bear market does not inflict losses of more than 30%, the recovery is relatively rapid. The only outlier in the post-WWII period (besides now) is 1946–1949, where the market lost 26% and took more than 3 years to recover. In fact, the 1946 bear market is looking like the closest analogue to the present—especially as it, too, occurred against a backdrop of formidable inflation. Of course, as Mark Twain said, history doesn’t repeat, it only rhymes. So while past markets can provide valuable context, they are not worth much more than tea leaves as far as decision making.