Key points to remember
- The current bear market has now lasted for just over ten months.
- That’s longer than the average bear market at 9.6 months, but shorter than the longest on record which lasted a full 20 months in 1973/74.
- While we don’t know for sure when this current bear market will end, we can use history to provide some indication of what we have in store.
- For investors, that could mean we have a ways to go, which means looking at ways to protect your portfolio in the meantime.
Not really. Well at least, probably not. That would be nice, wouldn’t it?
The truth is, we don’t know for sure when the current market is going to end. But before clicking on this article thinking it was a completed waste of time, we can do something to give us clues.
Bear markets have already happened. Several times. A look back at history won’t tell us for sure how long this bear market will last, but we can get an idea of how long usually last.
With this information in hand, we can also examine the shortest bear markets in history, as well as the longest. Put it all together and we can start to understand better how much more pain we can expect before things start to get better.
So that’s exactly what we’re going to do.
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The stock market predicts the future…sort of
There seems to be a lot of bad news on the horizon. The likelihood of an economic recession appears to be increasing, interest rates are rising and inflation remains high. Even the real estate market has started to take off, these are all-time highs.
You might look at this news and then look at the stock market and think “wow, things are going to get worse”.
You may be right, but the fact is that the stock market looks to the future. Not perfectly, of course, but in economic terms it’s called a leading indicator.
This is because investors and traders consider the potential impact of stocks on future economic news. This is called ‘valuation’, with the prices they are willing to pay for stocks now reflecting the impact they expect to have on future economic performance.
So much of the volatility we’ve seen in the stock market so far isn’t due to current company earnings and growth, in fact, it’s remained quite strong even in the tech sector .
Prices have fallen because the outlook is negative. Investors are pricing stocks like Meta and Tesla and Alphabet expecting revenue and growth to slow in the coming year as economic growth tumbles.
The same goes for good news.
When the economy is in the doldrums, there will eventually come a time when analysts begin to see a light at the end of the tunnel. This can cause stock markets to rally, even if the economy itself is still several months away from recovery.
The point of all of this is to say that just because it looks like we’re going to have at least another year of economic hardship doesn’t mean we’re necessarily going to be in a bear market all that time.
How long does the average bear market last?
The impact of a bear market on a country’s wealth can be devastating, but it tends to be surprisingly short-lived. In fact, the average bear market only lasts 9.6 months.
So, in most cases, the stock market decline is over in less than a year. This shows how quickly things can turn and why it is incredibly difficult to time the market perfectly.
Of course, that’s the average, which means there will be plenty of bear markets that last longer than that and plenty that don’t last that long. The shortest bear market we have ever seen occurred at the start of the pandemic, which lasted only 33 days.
Yes, a little over a month and the bear market was over, and then we saw nearly two full years of incredible returns.
As for the longest, it’s a little more depressing. The early 1930s saw a large number of bear markets in a short period of time. Between the middle of 1929 and the end of 1933, there were seven (!) bear markets in total, but there were periods of strong growth among them.
The most sustained bear market was in 1973/74, which lasted about 20 months. Still less than two years, but nevertheless a significant delay to see no recovery in stock prices.
So we have the shortest of all time at about a month, the longest of all time at 20 months, and the average in the middle at about ten months. So where are we?
When will the bear market end?
The current S&P 500 bear market was officially called June 13, 2022 when the market fell 20% from its peak. This fall began on January 3, 2022, which marks the beginning of the current bear market.
So that means it’s been going on for just over ten months.
Well, the good news is that we’ve passed the mark (hopefully). It is now officially a longer than average bear market. But how long will this still last? Well, this could become the longest bear market ever.
The pandemic has created a very unusual set of economic circumstances, so it’s not entirely out of the question. Let’s hold that for a minute and use the previous worst as a benchmark.
If the current bear market were to last 20 months, to match the longest ever, that means we’re barely halfway there. Another nine and a half months would bring us to October of next year as the end of the current bear market.
So, the end of the bear market by October 2023 is probably a pretty reasonable guess. Again, however, this is only a projection and the reality remains to be seen.
In many ways though, this timeline makes sense. We probably expect more volatility as rates continue to be risky and inflation slowly begins to decline. As we approach next year, we should hope to see some progress on the inflation front, which means the Fed can start to slow its rate hikes and perhaps even hold them steady.
Markets will likely be pretty happy with that, and we might start to see some recovery attempts.
The prospect of an easing of monetary policy could also allow public companies to offer slightly more encouraging guidance than they have been lately. This would further encourage investors and the whole bull cycle could start again.
These are just guesses, but that’s how the market works. We see cycles of good news and positive expectations leading to more good news and better expectations.
So while the current bear market has been tough so far, hopefully we’re starting to get on the safe side.
What does this mean for investors?
The key point really is that you can’t time the market. It is impossible to truly know when the bear market will end and when stocks will begin their rally. We know it will eventually happen, and when it does, there can be significant financial rewards.
Compared to the average bear market, the average bull market lasts much longer at 31 months. This means that sitting on the cash key and waiting for the perfect moment to enter can lead to serious missed winnings.
That said, it is reasonable for investors to want to limit their exposure to volatility as we remain in a bear market.
To help you, we’ve created an AI-powered hedging strategy that can be added to all of our base kits. It’s called portfolio protection and it starts with using AI to analyze your portfolio and assess its sensitivity to risks such as interest rate risk, overall market risk and even oil risk.
Once this analysis is done, the AI automatically implements sophisticated hedging strategies to help protect against it. This is re-executed and adjusted every week, in order to always take into account the most recent information.
It’s like having your own personal hedge fund, right in your pocket.
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