The Covid-related bear market of 2020 was a vicious but brief affair; the S&P 500 fell 35 per cent in a month before promptly taking off. In contrast, the current downturn is already in its fifth month. How long is the pain likely to last?
History suggests stocks may keep falling for months, says Bank of America's Michael Hartnett. Looking at the last 19 bear markets, he found stocks suffered average declines of 37 per cent with an average duration of 289 days. If history repeats itself, stocks could suffer further downside of roughly 25 per cent, not bottoming until October.
Ritholtz Wealth Management’s Ben Carlson’s figures are slightly less grim, as he finds stocks have suffered average losses of 30 per cent over the last 15 bear markets. However, they can be drawn-out affairs, with stocks taking just under a year to bottom and over 1½ years to break even.
Of course, no two instances are the same. Eight of the last 15 bear markets broke even in under a year, says Carlson, but the worst crashes – in 1973-1974, 2000-2002, and 2007-09 – all took over four years to break even.
Bear markets are unavoidable. Long-term investors have no choice but to be patient.
