Two sets of historic data points offer a clear range for when the current bear market could end.
Though you probably don’t need the reminder, 2022 was a miserable year for Wall Street and investors. Last year, the iconic Dow Jones Industrial Average (^DJI 0.33%), benchmark S&P 500 (^GSPC 0.40%), and growth-stock-dependent Nasdaq Composite (^IXIC) plunged 9%, 19%, and 33%, respectively. More importantly, all three indexes firmly fell into a bear market.
While bear market declines are a normal part of the investing cycle, they nonetheless leave most investors wondering when the light at the end of the tunnel will be reached. Although there’s no exact science to predicting when a bear market will end, history does provide two pretty clear clues as to how long bear markets last.
The average bear market takes more than a year to reach its nadir
Since the beginning of 1950, the widely followed S&P 500 has endured 39 separate double-digit percentage corrections. All told, 11 of these 39 declines have officially become bear markets. I say “officially” because I’m not including the 19.9% peak decline in 1990 or the 19.8% drop in the S&P 500 during the fourth quarter of 2018. Neither of these corrections hit the 20% line in the sand required to be called a bear market. Excluding the existing bear market, here’s how many calendar days the previous 10 bear markets took to reach their respective trough, as well as the magnitude of each decline:- 1957: 99 calendar days, 21% decline
- 1962: 174 calendar days, 26% decline
- 1966: 240 calendar days, 22% decline
- 1968-1970: 543 calendar days, 36% decline
- 1973-1974: 630 calendar days, 48% decline
- 1980-1982: 622 calendar days, 27% decline
- 1987: 101 calendar days, 34% decline
- 2000-2002: 929 calendar days, 49% decline
- 2007-2009: 517 calendar days, 57% decline
- 2020: 33 calendar days, 34% decline
Federal Reserve monetary policy suggests a bear market bottom is a long way off
However, there’s another historic set of data points that bodes poorly for the S&P 500, Dow Jones, or Nasdaq Composite. Looking back multiple decades, U.S. economic weakness and commensurate stock market corrections have been met with relatively swift action by the Federal Reserve. The nation’s central bank has a history of shifting to a dovish monetary stance during big declines in the broader market. In easy-to-understand terms, the Fed lowers interest rates to encourage lending when the U.S. economy and/or stock market begin to show cracks in their respective foundations. Since this century began, the Federal Reserve has undertaken three rate-easing cycles.- Jan. 3, 2001: In under a year, the nation’s central bank lowered its federal funds rate from 6.5% to 1.75%. The S&P 500 took 645 calendar days to bottom following this first rate cut.
- Sept. 18, 2007: During the financial crisis, the Fed rapidly cut its federal funds rate from 5.25% to between 0% and 0.25%. The S&P 500 would bottom out in March 2009 after 538 calendar days.
- July 31, 2019: The most recent easing cycle this century saw the Fed reduce its federal funds rate from between 2% and 2.25% to 0% and 0.25%. The S&P 500 bottomed out in March 2020 (during the COVID-19 crash) after 236 calendar days.