Saturday, December 19, 2009, 5:30PM ET - U.S. Markets Closed.

How Bear Markets End

Posted Apr 07, 2009 01:35pm EDT by Henry Blodget in Investing, Internet, Banking

From The Business Insider, April 7, 2009:

Doug Short has taken a detailed look at the 10 bear markets and bear-market-recoveries since 1950.  You can click through a slideshow showing each of these periods in detail here.

Importantly, Doug's charts do not include the horrific bear market of 1929-1932 (see right), which puts all of these to shame.  To get a more detailed sense of how that one "bottomed," click through to the last slide, which overlays our current bear market on top of the three nastiest ones in the last century.

Some key points:

  • The 10 bear markets since 1950 have bottomed down 20% to 57% (current) off the peak. The current bear is by far the worst since the Great Crash, which bottomed down 89%.
  • The bear phases of these markets lasted from 3 - 30 months (we're currently in month 17). The drop from 1929-1932 was also about 30 months.
  • Most of these markets offered some sort of "retest" of the low. Importantly, however, some did not.  (As always, beware confident "technical" analysts)
  • As this additional chart from Doug shows, the S&P is now trading about in-line with its long-term price trend after 15 years of trading above it.  So even if we have put in the bear-market bottom, it is likely that the S&P will eventually trade below trend for a considerable period of time.
Also from The Business Insider: 140 Years of Bull and Bear Markets

112 Comments

Zhe
Zhe - Tuesday April 07, 2009 01:41PM EDT

too simplified, though possible.

Yahoo! Finance User
Yahoo! Finance User - Tuesday April 07, 2009 01:46PM EDT

"How Bear Markets End"? with a zero!

Yahoo! Finance User
Yahoo! Finance User - Tuesday April 07, 2009 01:47PM EDT

The headline bears no relationship to the article.

Yahoo! Finance User
Yahoo! Finance User - Tuesday April 07, 2009 01:51PM EDT

This is nonsense. Short is examining a RAW INDEX which does not reflect an investors' returns which include DIVIDENDS. Even worse, his chart is inflation adjusted...all he has done is fit a line to historic data - well duh, sometimes the average if above trend and sometimes below.

markh
markh - Tuesday April 07, 2009 01:52PM EDT

hey look at me... hiyaaaaaaa lol

Mike Hunt-Hertz
Mike Hunt-Hertz - Tuesday April 07, 2009 01:54PM EDT

Thanks, I think. I've heard less vagueness and pointlessness in a George W Bush speech.

Yahoo! Finance User
Yahoo! Finance User - Tuesday April 07, 2009 02:02PM EDT

it seems that we are heading for a new bottom

Ernie
Ernie - Tuesday April 07, 2009 02:04PM EDT

If you look at that trendline, the S&P bottomed out significantly below that long term trendline. If I was to inferred anything, it would be that we are going much much lower.

Ross Perot
Ross Perot - Tuesday April 07, 2009 02:05PM EDT

Wow this article is a great example of how really educated intelligent people can produce an excellent essay with absolutely no footnotes or bibliography and expect me to believe it or give a damn.

Ken M
Ken M - Tuesday April 07, 2009 02:06PM EDT

2 paragraphs and chart is not an article.

Screw Obama he is a thug and a gangster.
Screw Obama he is a thug and a gangster. - Tuesday April 07, 2009 02:07PM EDT

With Obama in, and all the wasteful spending, socialism, and insults hurled against America by Obama himself, expect the markets to have little faith in our goverment.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Tuesday April 07, 2009 02:08PM EDT

I like charts & graphs,I can turn it upside down also.

Yahoo! Finance User
Yahoo! Finance User - Tuesday April 07, 2009 02:11PM EDT

I believe that technical analysis suffers from one of the great fallacies of mathematics and statistics. Many people try to predict the outcome of a random series of numbers, such as lotto numbers or coin tosses by looking at patterns in the previous numbers. For example, lotto pickers see that the past few number combinations all contain multiples of 6, so they make some conclusion based on that. This is a well jknown fallacy in mathematics because random numbers are just random numbers and patterns in them are illusions. Now, there are some modern chaos theory advocates who do show a mathematical reasoning to interpreting patterns, but I am pretty certain that all the technical analysts out there in the world are not proficient enough in advanced mathematics to be using those theories.

JB
JB - Tuesday April 07, 2009 02:12PM EDT

How does changing the components and weightings of the S&P affect the long-term trend?

Jack
Jack - Tuesday April 07, 2009 02:14PM EDT

Umm, and so how do bear markets end? Oh I get it, since they article didn't say, nobody really knows, that is the point right? THANKS.

Gene
Gene - Tuesday April 07, 2009 02:15PM EDT

Follow the bouncing ball. It looses momentum until it finds its way to another bottom. It will continue down, bouncing all the way until its energy is spent and it rolls to a stop, or until the children come out to resume the game after their naps.

t
t - Tuesday April 07, 2009 02:16PM EDT

in an essentially hollow econmiy the only money to be made is by running the market up and then running it down again. Now its time to run it down and so you are all being fed negative news. Down we go again. just go short ride the downside and don't worry about it...

Reinaldo
Reinaldo - Tuesday April 07, 2009 02:19PM EDT

I Told every one on Friday that the Bears we're gonna show Up This Week. Take Your Money and run to make a profit from last 2 weeks You Betcha

bill
bill - Tuesday April 07, 2009 02:21PM EDT

I think it is possible for market to test a new low if the earnings are bad. It is also likely that the earnings will be bad. Therefore save your money for now and buy in at a new low.,, that's what I think this article meant.

Yahoo! Finance User
Yahoo! Finance User - Tuesday April 07, 2009 02:22PM EDT

captn1_jack - Tuesday April 07, 2009 01:49PM EDT It will end when obama is cleaning the streets, doubtful he is qualified for that either. ------ HAHA, yah,people who graduate from Harvard aren't qualified? You make me sick!

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