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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This is the longest bull market in history…or is it….

Today, the bull market turns 3,543 days old…maybe.

We tend to break up the market cycle into bull phases (rising markets) and bear phases (falling markets), which makes sense. However, the demarcation of each, a 20% rise or fall, is completely arbitrary. Why isn’t it 30%, or 21%, or 19%? Why does it have to be 20%? In any case, that’s the most widely used definition so that’s what we’ll use here as well.

However, there is another element that confuses the issue. Although yesterday the S&P 500 set a new all-time intra-day high of $2,873.23, the S&P 500 fell off towards the end of the day so that it still has not closed above the January 26th all-time closing high of $2,872.87 (closed at $2,862.96).

That means, based on closing price, we still do not have confirmation that this is the longest bull market in history as it’s possible January 26th remains the top for the bull market that began in March of 2009 and, therefore, the beginning of the bear market. Another market issue that can only be identified in hindsight. I guess we’ll find out soon enough.

Signals Through the Noise

It’s no secret that I have been concerned about both (1) our proximity to the next bear market and (2) the potential severity of the decline in the next bear market.

A tricky thing about bear markets, however, is that we can be in one for a long time before we even realize it. That’s because bear markets can only be confirmed in hindsight only AFTER losses have become sufficiently severe. That doesn’t do the “reactive” investor any good because by the time it is known we are in a bear market (or a recession) it’s almost too late to do anything about it. The only way to avoid being reactive is to be proactive, which can only be accomplished if you understand history and are able to pick up on meaningful signals through all the noise. Continue reading “Signals Through the Noise”

Are You Prepared for the Next Bear Market?

My expectation for losses in U.S. stocks during the next bear market is over 60%, which would take us back about twenty years and would require at least a 150% gain just to get back to even.

What impact would such a loss have on your portfolio? What impact would that have on your ability to retire or sustain your retirement lifestyle? Would any other financial goals be impacted? How about the toll on your mental health to see such a large chunk of your life savings wiped out. Continue reading “Are You Prepared for the Next Bear Market?”