Bear Market Rallies in Context

The stock market is experiencing quite a rally this month. So, I thought it would be interesting to take a look at the last five bear markets to check (a) if rallies have been common within past bear markets, (b) how long bear market rallies typically last, and (c) the average magnitude of bear market rallies.

Executive Summary: Every single one of the last five bear markets going back to 1973 included at least one rally of 10% or more before the market fell further. The average bear market rally since 1973 has been about 15% and lasted about 1.5 months on average. The rally we’re currently experiencing has produced about a 12.1% increase over the last three weeks.

A bear market rally is simply a temporary uptrend in stock prices during a longer-term downtrend (i.e. bear market). These rallies are often called bull traps because they can trick people into thinking the worst is over causing some folks to buy back in only to get smothered when the market reverses again to resume its downtrend.

Info below does not include dividends, uses closing prices as opposed to intra-day prices, and lists only moves of at least 10%. SPX is the symbol for the S&P 500 Index.

January 11, 1973 (SPX: 120.24) to October 3, 1974 (SPX: 62.28)
This bear market lasted over 20 months and lost over 48%.

First Leg Down (ended August 22, 1973): -16.4%
First 10%+ Rally (ended October 12, 1973): 10.8%

Next Leg Down (ended October 3, 1974): -44.1%

 

November 28, 1980 (SPX: 140.52) to August 12, 1982 (SPX: 102.42)
This bear market lasted over 20 months and lost over 27% (a mild bear market). I’m assuming this was quite mild because total debt was very low at the start of this bear market, and it arrived on the back of an already terrible decade so valuations were already quite reasonable to begin with.

First Leg Down (ended September 25, 1981): -19.7%
First 10%+ Rally (ended November 30, 1981): 12.0%

Next Leg Down (ended March 8, 1982): -15.0%
Next 10%+ Rally (ended May 7, 1982): 11.3%

Next Leg Down (ended August 12, 1982): -14.3%

 

August 25, 1987 (SPX: 336.77) to December 4, 1987 (SPX: 223.92)
This bear market lasted just over three months and lost over 33%.

First Leg Down (ended October 19, 1987): -33.2%
First 10%+ Rally (ended October 21, 1987): 14.9%

Next Leg Down (ended December 4, 1987): -13.3%

 

March 23, 2000 (SPX: 1,527.46) to October 9, 2002 (SPX: 776.769)
This bear market lasted over 30 months and lost about 50%.

First Leg Down (ended April 14, 2000): -11.2%
First 10%+ Rally (ended September 1, 2000): 12.1%

Next Leg Down (ended April 4, 2001): -27.5%
Next 10%+ Rally (ended May 21, 2001): 19.0%

Next Leg Down (ended September 21, 2001): -26.4%
Next 10%+ Rally (ended January 4, 2002): 21.4%

Next Leg Down (ended July 23, 2002): -32.0%
Next 10%+ Rally (ended August 22, 2002): 20.7%

Next Leg Down (ended October 9, 2002): -19.3%

 

October 9, 2007 (SPX: 1,565.15) to March 9, 2009 (SPX: 676.53 )
This bear market lasted 17 months and lost over 56%

First Leg Down (ended March 10, 2008): -18.6%
First 10%+ Rally (ended May 19, 2008): 12.0%

Next Leg Down (ended October 10, 2008): -37.0%
Next 10%+ Rally (ended October 13, 2008): 11.6%

Next Leg Down (ended October 27, 2008): -15.4%
Next 10%+ Rally (ended November 4, 2008): 11.6%

Next Leg Down (ended November 20, 2008): -25.2%
Next 10%+ Rally (ended January 6, 2009): 24.2%

Next Leg Down (ended March 9, 2009): -27.6%

 

It’s also interesting that in 4 out of the last 5 bear markets, the first 10%+ rally occurred BEFORE the S&P 500 was in a confirmed bear market (defined as at least a 20% decline).

Disclosures:
Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much data used to interpret the markets may often be at odds and can result in different conclusions.

This is NOT investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances is completed.