3 Crucial Lessons For Today From Past Stock Bear Markets – Forbes
Lessons From Past Bear Markets
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One significant benefit of looking at past large stock declines is that it demystifies some uncertainty around bear markets. History won’t tell us exactly how long the market will be down or how much it will fall but knowing that we’ve been here before and stocks have always rebounded to new highs should provide some comfort to investors.
Lesson one is that stocks probably saw most of the bear market downturn as of October 2022. Still, it shouldn’t surprise anyone if stocks fall beyond that level to some extent if the recession appears in 2023 as expected. Since 1946, the S&P 500 has experienced seventeen bear markets, defined as a decline of about 20% from the peak. While the slight majority of bear markets are associated with a recession, almost half happen with one. It is also worth noting that not every recession leads to a bear market. For example, the recession in 1960 saw stocks decline by about 14%. At the market low in October 2022, the S&P 500 was more than 25% off its peak, which is more than the typical bear market without a recession. While a recession in 2023 should be expected, stocks fell to near the usual decline of 27% and beyond the mildest recession bear market. The sharpest declines were associated with more severe crises beyond an economic downturn, the technology bubble in the early 2000s, and the global financial crisis in 2008.
S&P 500 Bear Market Price Returns Since 1946
Glenview Trust, Bloomberg
Lesson two is that stocks have historically not bottomed before the recession starts, typically five months after the economic contraction begins. If the high odds of a recession in 2023 are correct, stocks could still hit bottom very near that time since stocks have bottomed one month after. Despite not happening before, there is no rule that stocks can’t bottom before the economy enters a downturn. Even though it is a small probability, the U.S. economy could avoid recession which would probably mean that stocks bottomed in October.
Months From Start Of Recession To Stock Bottom Since 1949
Glenview Trust, Bloomberg
Stocks have consistently declined after the start of a recession, but sometimes the declines from that point are relatively modest. For example, the S&P 500 only fell another 3.8% after the 1960 recession began. In two other instances, 1949 and 1954, the additional stock declines were around 8%.
S&P 500 Return From Start Of Recession To Stock Bottom
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