A Look at Bear Markets
At the close of the market on June 13th the S&P 500 entered a bear market as defined by a 20% drop from its prior peak, which occurred on January 3rd. I thought it might be helpful to look back at prior bear markets for some perspective and provide a few things to consider.
Here is a list of the last 7 bear markets over the last 50 years.
Year(s) Event/Title Dip Duration
1973-74 Oil Shock 48% 21 months
1980-82 Volcker Squeeze 27.1% 20 months
1987 Black Monday 33.5% 3 months
2000-02 Tech Bubble 49.1% 31 months
2007-09 Financial Crisis 57% 17 months
2020 Coronavirus 33.9% 1 month
2022 Current Inflation ?? ??
The above numbers are both encouraging and discouraging. No one knows how long this bear market will last and there is a reality it could go lower from here. But there is good news as well, besides the fact that every bear market has come to an end, on average it did so quicker than the time it took to officially become a bear market. The current bear market started about 6 months ago, and though we don’t know when it will end, there is a chance we are closer to the bottom than the beginning.
More good news/bad news - Bear markets take 21 months on average to return to the previous high, and for that to happen returns are generally strong following bear markets, which can present a buying opportunity. More importantly, avoid exiting the market and locking-in losses, as you will miss out on the eventual recovery. Though the fight against inflation is ongoing and we very well could be headed towards a recession, markets generally start to recover well before recessions end and sometimes even before they are officially declared. Long-term investors experience a lot more good times than bad and make money if they have the means and wherewithal to ride out the dips.
For those of you thinking, but this time it’s different! You’re right, every time is different, but what I don’t believe will be different is the resiliency of the stock market. “This time it’s different” is often said with the implication that the market won’t recover, and so far history has always proved that to be wrong and I believe it will again.
Things you can do:
- Review your financial plan – Evaluate if your plans are still on track and what impact market volatility has had (a good plan should take the reality of volatile markets into account). There may be opportunities such as tax planning strategies, Roth IRA conversions, and saving more to name a few.
- Stick with your investment strategy – This assumes you have one and it’s built around your financial goals rather than being reactionary.
- Rebalance – If your asset allocation has drifted from its objectives, rebalancing can provide an opportunity to buy low/sell high.
- Harvest losses – This is the process of selling assets at a loss and replacing them with similar investments, so not to exit the market but take advantage of tax rules. Make sure you are aware of those rules before implementing this strategy.
- Maintain savings – It is important to keep safe, liquid investments to meet shorter-term obligations or emergencies. Consider high-yield savings accounts for liquid reserves and purchasing series I Savings Bonds for money you know you won’t need for at least a year.
- Buy the dip – If you have excess funds, now could be a good time to invest them. Stocks and bonds are both trading at much more attractive valuations than at the beginning of the year.
- Dollar cost average – If you are buying into the market and are nervous about further losses, consider making purchases at regular intervals in an effort to reduce market timing risk.
If you have questions about your financial plan or investment strategy, feel free to reach out at advisor@blakegallion.com.
