The pace with which the Coronavirus bear toppled the longest-running bull market in history was startling. The Dow Jones Industrial Average officially entered the “Coronavirus bear market” in just 20 trading days, easily making it the fastest such slide in stock market history. The second fastest was 1929 and that took 36 trading days.
Lest we forget: the highest closing record for the DJIA was set on February 12, 2020, when it closed at 29,551.42. Less than one month later, on March 11th, the DJIA closed at 23,553.22, down 20.3% from its high and officially ending the longest-running bull market in history that started in March 2009.
Bear Market Defined
In technical terms, the stock market enters a bear market whenever stock prices have fallen over 20% from their recent peaks. A bull market, on the other hand, is when stock prices rise by at least 20%. There is debate as to where the true origins of these expressions came from, but many suggest that it has to do with how each animal attacks: a bull thrusts its horns and enemies upward whereas a bear swipes its paws and enemies downward. Neither sound pleasant.
In fact, an examination of the historical performance of the S&P 500 from 1926 through March 2020 shows that:
The silver lining is that bear markets are shorter than bull markets.
Stock Market Corrections & Crashes
It is important to distinguish a bear market from a market correction, which is shorter and involves less of a market decline. Market corrections are short-term trends that typically last less than a few months and involve stock market declines of at least 10% – but not as severe as the 20% fall of a bear market.
Stock market crashes, by contrast, are when stock markets plummet by more than 10% in a single day. The Great Crash of 1929 consisted of market drops of 13% and 12% on successive days. The stock market crash of October 19, 1987 – known as Black Monday – saw the market drop 23%. And on March 16, 2020, the market crashed when it dropped 13%.
Historical Bear Markets Between 1926 and March 2020
There have been eight bear markets, ranging in length from about 6 – 24 months and bringing market declines ranging from more than -80% to just over -20%.
Here are the more memorable bear markets.
The upside of a Bear Market
The one great thing about Bear Markets, is they end. And almost more importantly they make way for a new Bull Market.
Consider the rallies that occurred during a few of the past bear markets:
Thoughts for Investors
The question is, should the average investor remain invested when a bear market starts swiping its paws and everything downward? While the answer to that question depends on the individual investor, it is important to beware of the tendency to over-react to fears of a bear market or thrills of a bull market. Often times, individual investors tend to let their emotions adjust their holdings, which can result in selling after prices have fallen sharply, instead of buying at low prices (or buying after stocks have risen to unsustainable heights). Whether you will be able to out-wait the Coronavirus bear market and rebuild your portfolio to your satisfaction depends upon a deluge of factors, including the duration of the Coronavirus bear, your risk tolerance, your time to invest, the strength of your investments and the choices you make going forward.
Paul R. Rossi, CFA