How long will the bear market last? Can you time the bottom of the market, so you can buy in the dip? Many investors are asking themselves the same question. Should I invest now or will the market fall further? How long will this bear market last before it moves back into another bull run. To answer this question, we can ask what the bear market average length and how much this tends to vary.
First, we must separate out what we know about bull markets and what we know about bear markets. For example, we know that the movement between both is part of a natural economic cycle. When the market expands and overheats, it then cools and contracts.
In the past couple of years we’ve seen the massive growth in the economy as the world bounced from Covid-19. It went from being in a state of hibernation to consumers releasing pent-up demand on the economy. Mass amounts of economic stimulus was also pumped into the economy. This kept the economy on live support during multiple economic lockdowns.
These economic factors are causing a surge in inflation and interest rates are rising in response. Inflation and monetary tightening are causing the economy to lurch into economic contraction. A bear market. At the time of writing this article the Nasdaq has fallen 24% from it’s recent high. The S&P 500 has also just touched bear market territory.
Please note: This is not financial advice and you are responsible for your own financial decisions. When investing capital is at risk.
What the difference between a bull vs a bear market?
In case you aren’t familiar. A bull market is a term used to describe a market where prices are rising or expected to rise. The market can still have its wobbles, but there is an underlying enthusiasm.
There is a more technical definition for a bear market. Bear markets are defined as sustained periods of downward trending prices. This often starts or is characterized by a 20% decline from near-term highs.
As bear markets have this more technical definition, they can be used to separate bull and bear markets.
Here is a visualisation of the historical bull and bear markets. As you can see bull markets tend to run longer, with a relatively brief bear interruption in between. Unlike what most people think, the market generally exists in a state of bullishness.
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How Often Do We Move Between A Bull And Bear Market
Depending on the time-frame and the index in question, you might get different answers to this question. How often to we move between bull and bear market?
Since 1932, bear markets have occurred, on average, every four years and eight months, according to S&P Dow Jones Indices. Although, some estimates put the average bull market run at length at 2.7 years. The last bull market ran for 11 years, which just goes to show you can’t predict the market.
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What Is The Bear Market Average Length?
Bear markets are great for investors, on paper. Depressed stock prices in a bear market are a buy opportunity. A sustained fall in prices, gives investors a period of time to buy discounted discounts. The problem is that people get fearful in bear markets and for good reason. Bear markets are often accompanied by an economic recession and high unemployment, or is this case a cost of living crisis.
Recessions, tend to cause people to hoard case for worst case scenarios. It can also push you into a scarcity mindset. This can make you feel like you have less to invest and more at risk. Whilst you mind feel a degree of reluctance for now investing more heavily, as soon as the market falls, this might now be a bad thing. This is because the average length of a bear market is 9.6 months. You won’t necessarily be able to time to the bottom either.
This means that you really want enough cash flow to be able to invest consistently throughout the period. This is known as dollar-cost-averaging. Therefore, holding onto that dry powder might be a decent strategy. It’s important not be tricked into thinking the bear market will be a short dip. Bear markets can stretch beyond the bear market average length.
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How Long Can A Bear Market Last?
Let’s be clear, 9.6 months is the average bear market length. Historical bear markets have been as short as one month and as long as 2.8 years! You might be pleased to hear that you lived through the shortest ever bear market. In February 2020 the S&P 500 crashes 34% and had rebounded by March 23, 2022.
By contrast, you have go all the way back to the Great Depression for the longest bear market of 2.8 years. In more modern times, the longest bear market was 2.1 years. This occurred as a result of the dot.com bubble burst in the early 2000s. That’s more than twice as long as the average bear market length.
There is an indication that the faster the decline, the faster the recovery. If February 2020 is anything to do by this might be true. On the whole, however, you never know how long a bear market will last.
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When Will The Bear Market Recover?
There are strong economic factors at play. High inflation will drive up interest rates. This may strangle economic growth into a period of stagflation. The cost of living crisis may continue to drain consumer confidence and suffocate growth. This bear market may last longer than the bear market average length.
Let’s not forget, this is a major paradigm shift from a decade of low rates, which have accelerated grow to an extreme level. For example, in 2021 120 unicorns went public. This is where companies reach billion dollar valuations. Already we have seen this number drop in 2022.
Add to this, the last time inflation was this high (1990), the interest rate exceeded 13%. At 0.25 to 0.5% base rate increments, it may take a while for interest rates to normalise and bring down inflation. Whilst that is happening price inflation will continue to wreak havoc on the economy. This is creating a major dilemma for first time buyers is it the last chance to buy or will the housing market crash?
Am I brave enough to predict how long the bear market will last? No, not really. That’s why I’ll be sticking with my passive index investing strategy. I’ll continue to just average out my investments. For fun. I’m going to say the bear market will last … until February 2024. With the bottom being around mid-2023.
What do you think? Brave enough to make a prediction?
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