Market action on Monday led the S&P 500 Index to post a loss of -3.88%, which brings the index to a decline of -21.83% from its all-time closing high on January 3, 2022. This leaves the S&P 500 in a bear market for the first time since the 2020 pandemic-induced decline. A bear market is usually defined as a period of prolonged price declines in an index/security, typically occurring when that investment declines by 20% or more from recent highs (source: Investopedia.com). We will classify a bear market occurrence as a 20% decline from a relative high followed by a 20% rally from a low.
There has been a total of 26 such bear market environments since 1927, not including the current market. The prior events are generally well spaced out, as we see an average of 1320 days between bear market occurrences. Some years see many more bear markets than others, as ten of the events came from 1929 to 1939. The length and magnitude of these bear markets vary, yet we see an average peak to trough decline of -35.42% in SPX in the instances examined. It takes the index an average of 285 days to go from its high to its ultimate low. The longest peak to trough bear market decline occurred from January 11, 1973, to October 3, 1974, at 630 days. That market saw the index reach bear market territory almost a year before its bottom. The shortest peak to trough decline came in 2020, as SPX took just 33 days to decline almost 34%. The decline seen in 2020 was about the same as the average decline seen throughout all the 26 prior bear markets since 1927.
Looking at the historical data another way shows that the average bear market sees a 17% further decline from the index value after it has already declined 20%. It takes the S&P 500 just over 100 days on average to move from the bear market decline to the ultimate bottom, with a median of 68 days. However, if we cluster the bear markets by decade, we can see that most time periods do not see a further decline much worse than another 10% lower from the date that SPX entered a bear market. The exceptions were the 1920s, 1930s, 1970s, and 2000s. Pina F.
Pina Formicola, AWMA, AIF
Director of Research Analysis/Wealth Manager
Tax & Investment Group
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