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Recent Bull and Bear Markets

Oct 12, 2022 | Research

Equities markets, like the economy, are often cyclical. Periods of prolonged expansion are typically followed by troughs that can be devastating for unprepared investors. These are commonly referred to as “bull” and “bear” markets.

Wise investment decisions often depend on the current state of the market. It is all too easy to buy at the peak of a bull market or overreact and sell at the bottom of a bear market. However, if you understand these cycles, you can prepare for changes in stock values and make decisions that will benefit you in the long run.

What are Bull and Bear Markets?

The terms “bull” and “bear” market are a common way financial pundits characterize the current trend of stock prices. Often, a particular index, like the S&P 500, is used as a gauge to determine if equity markets are in a “bull” or a “bear” market.

A bull market is a prolonged period of price growth. During a bull market, stock values tend to rise across the board and common metrics like the P/E ratio tend to strengthen. Conversely, a bear market occurs when asset values drop by 20% or more from a recent high and sustain those losses. During these times, common ratios tend to weaken and stock prices fall in most industries.

How long do bull and bear markets usually last?

According to First Trust1, the average bull market since 1942 has lasted 4.4 years. During these bull markets, the S&P 500 has returned an average of 155.7%.

Bear markets tend to be much shorter than bull markets. In fact, the average bear market since 1942 has lasted just 11.3 months. While bear markets tend to be short-lived, the losses can be significant. During the average bear market, the S&P 500 has fallen 31.4%.

Recent S&P 500 Bull and Bear Markets

In the past 30 years, the S&P 500 has experienced several bull and bear markets. Each had its own characteristics that created confusion for some investors, so understanding these variations can be critical in predicting how the next one behaves.

The Tech Bubble Bear Market 2000 – 2002

Low interest rates, rapid advancements in technology, and unchecked optimism regarding the future of the internet led to a strong bull market in the late 1990s which progressed into a massive asset price bubble. Much like the crypto craze in 2021, investors rushed to purchase tech stocks during this time although many of the companies were not profitable or had no intrinsic value.

In 2000, investors began to realize that many “internet companies” had little revenue or resources to support their astronomical valuations. A large number of these companies eventually failed completely, and investor optimism plummeted. As investors rushed to pull their funds from tech companies, equities markets tumbled. This was known as the bursting of the “tech bubble.”

From March 2000 to October 2002, the tech-heavy Nasdaq Composite index fell an astounding 78%. These losses were also felt in the S&P 500, though to a lesser extent. During the same time frame, the S&P 500 lost more than 35%2.

Bull Market 2002 – 2007

Between 2000 and 2002, the Federal Reserve lowered interest rates and added significant liquidity to the markets. Stock valuations returned to a more normal level and then began growing. The U.S. experienced a bull market from 2002 to 2007. During that time, the S&P 500 gained 101.5%2.

Bear Market 2007 – 2009

In 2007, the bull market came to a definitive close. The housing bubble and financial crisis led to a recession felt in nearly every aspect of the economy, including stocks. From October 2007 to March 2009 the S&P 500 lost about half of its value2.

The Longest Bull Market in History 2009 – 2020

Following the Great Recession and the bear market that accompanied it, stocks experienced the longest bull market on record between 2009 and 2020. During those 11 years, the S&P 500 climbed about 400%2.

This lengthy bull market in equities was driven first by a recovery from the deep bear market it followed, then by historically low interest rates throughout the decade, and finally a historic tax cut. This extended period of stock price growth abruptly ended with the COVID-19 pandemic.

The Pandemic Bear Market of 2020

The sudden onset of the COVID-19 pandemic brought the longest bull market on record to a halt. Beginning in February 2020, the S&P 500 experienced a brief but deep sell off lasting about a month – where the index lost more than a third of its value2. Although the downturn did not last as long as a typical bear market, many analysts consider this period to be a bear market due to the extraordinary depth of its losses.

The Post-Pandemic Bull Market 2020 – 2022

A combination of unprecedented federal stimulus and exceptionally accommodative monetary policy helped stocks recover quickly from the 2020 bear market. By the spring of 2022, the S&P 500 had gained 114.4%2.

This time, rampant inflation was credited with the demise of the bull market. In 2022, inflation soared to levels that were around 4x the Fed’s accepted level of 2%. The FOMC responded with a series of aggressive interest rate hikes. Higher interest rates are often a death knell for stocks, especially those valued based on their future growth. This proved to be the case as stocks began a somewhat orderly decline in mid-2022.

The Stock Market in 2022

The effects of rising rates in 2022 have been compounded by the war between Russia and Ukraine. This conflict has created global economic uncertainty and worsened already strained supply lines. These factors weighed on investor optimism and the S&P 500 entered bear market territory in June.

Both bull and bear markets can present challenges for your portfolio. When markets are at their peak, you may be enticed to buy at the elevated prices and risk losing your funds in the next market crash. On the other hand, low prices or a recent market correction could deter you from investing in stocks and you could miss out on the recovery gains – which are often rapid and difficult to capture once they have begun. That’s why you should seek the advice of an experienced financial advisor. The right advisor can help you find opportunities and hedge against losses in any market.

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1“History of U.S. Bear & Bull Markets Daily Returns Since 1942” – https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d

2Yahoo Finance