Bear Markets 1871 to Date: Duration and Magnitude

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Bear Markets 1871 to Date: Duration and Magnitude by GREENBACKD

This week I’ve examined the course of bear markets from 1871 to date (really to March 2009, the end of the last bear market). This post is part 2 of last week’s post about the duration and magnitude of all bull market periods in U.S. stocks since 1871, which used the S&P 500 price series from Shiller’s publicly available database and the method adopted by Butler|Philbrick|Gordillo and Associates’ post What the Bull Giveth, the Bear Taketh Away. A bear market is defined as a drop in prices of at least 20 percent from any peak, and which lasted at least 3 months. A bull market was defined as a rise of at least 50 percent from the bear market low, over a period lasting at least 6 months.

Chart 1 and Table 1 describe every bear market since 1871 in the S&P, including duration and magnitude information.

Chart 1. Bear Markets since 1871


Table 1. Bear Markets since 1871 – Statistics

bear markets


The average bear market lasts 43 months–about 3 1/2 years–and wipes out 37 percent of the market’s gains. Butler et al. point out that a drop of this magnitude requires a gain of about 60 percent to break even. The average bull market since 1871 has gained 182 percent, so the first third of the bull is simply making back losses from the bear. If we could figure out a reliable means to avoid bear markets we could pocket all of that gain, but, as far as I am aware, none has every been found. Timing mechanisms based on valuation don’t work, and neither do timing mechanisms based on price action. Most timing mechanisms generate too many false positives–signals to exit when no bear eventuates–and so increase trading costs and tax events. Bear markets and volatility are simply the cost of doing business in the market.

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