The
accepted definition of a bear market is that prices have to
drop at least 20% and decline for at least nine
months. In the past 30 years we have experienced only
two bear markets. The first started in the fall
of 2000 and prices dropped 44% over 30 months. (The
dot-com bubble.) The second occurred during the global
financial collapse in 2008.
This chart is designed to compare the
recent bear market with the 2008 bear market.The data
plotted on the chart are the logarithms of the actual data.
That means that equal movements in the series represent
equal percent changes. Because the data from
the financial crisis occurred fourteen years ago they are at
a much lower level. A constant was added to the data so they
could be plotted to the present scale.In the '08 event
the market hit a peak in October 2007 after which a normal
bear market got underway. It proceeded in a gradual
way over 11 months with the weekly average declining about
20%. In September 2008 the Lehman Brothers went
bankrupt and the the financial crisis hit (arrow). From that
point prices fell another six months. The weekly average of
the S&P 500 dropped 44% during that six months to March
2009. As shown on the chart the market fell 55% for 17
months with the two situations occurring in sequence.
The covid virus
pandemic began in the U.S. in February 2020. The weekly
average of stock prices in the week ended February 14th was
3369. Five weeks later the weekly average ending March
20th was 2406, down 29%. After the low March 20th week,
prices increased 94% through the second week of November
2021. Even
though the price average dropped more than 20% it did not
become a bear market because of the rapid recovery.
On June 16th 2022 when the S&P 500 closed at 3667, down 23.6% from the high 4797 closing on January 3rd, this technically became a bear market. As is common in a typical bear market there is volatility as news fluctuates between positive and negative. Both the recent and the 2008 bear market had similar volatility and rallies. In the recent bear market the percent decline, and number of months decline, was almost the same as the last bear market before the financial collapse occurred. (Green arrow).
The recent bear market reached its bottom in October 2022. The previous peak in January 2022 was reached in 24 months. This was an amazing record recovery. The 2000 bear market took 81 months to regain the previous high. The 2008 bear market took 67 months. There are several reasons to explain why the recent bear market was relatively short. The two previous bear markets were preceded by excessive speculation. There was no speculation involved and because the pandemic hit so unexpectedly speculation had no time to develop. Also quick action by the government in granting a number of stimulus checks and prompt action by the Federal Reserve were important.
On June 16th 2022 when the S&P 500 closed at 3667, down 23.6% from the high 4797 closing on January 3rd, this technically became a bear market. As is common in a typical bear market there is volatility as news fluctuates between positive and negative. Both the recent and the 2008 bear market had similar volatility and rallies. In the recent bear market the percent decline, and number of months decline, was almost the same as the last bear market before the financial collapse occurred. (Green arrow).
The recent bear market reached its bottom in October 2022. The previous peak in January 2022 was reached in 24 months. This was an amazing record recovery. The 2000 bear market took 81 months to regain the previous high. The 2008 bear market took 67 months. There are several reasons to explain why the recent bear market was relatively short. The two previous bear markets were preceded by excessive speculation. There was no speculation involved and because the pandemic hit so unexpectedly speculation had no time to develop. Also quick action by the government in granting a number of stimulus checks and prompt action by the Federal Reserve were important.