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 SummaryEvery 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.
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Bigger Price Swings in Both Directions

You may have noticed larger price swings in the market over the last couple months. Another term for this is “volatility.”

Increasing volatility is normal as markets transition from up-trends (bull markets) to down-trends (bear markets). And, actually, large price swings IN BOTH DIRECTIONS are characteristic of bear markets.

Now, it’s reasonable to expect to see most of the worst daily returns in history during bear markets. However, what I found far more interesting when doing my analysis is that most of the best daily returns also occur during bear markets. In fact, eight out of the ten best days in the market (1950 – 2018) occurred durinbear markets! Continue reading “Bigger Price Swings in Both Directions”

The Most Misleading Chart in Finance?

I’ve recently seen an old chart making the rounds again. This is a chart many advisors bring out when markets start getting choppy. Advisors use this chart to prevent their clients from selling stocks when volatility picks up and clients start getting nervous (like this past October for example).

While I agree that emotional investors tend to make very poor decisions that end up costing them a lot of money, the chart commonly used to try and make that point is one of the most misleading charts in all of finance. I’m embarrassed to say I also used to show it.

Without further adieu, I present the most misleading chart in finance…

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