How long do bear markets last?

4.7

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In all the previous chapters of this module, we’ve only been focusing on bear markets and the various investment and exit strategies that we can use to fully make use of them. However, there’s one very important thing that we ought to discuss. At this point, you might have already even guessed it - the length of a bear market. The question of ‘How long do bear markets last?’ is something that you may have been wondering about for quite some time now, isn’t that right? Well, that’s what we’re about to find out in this chapter of Smart Money. So, let’s get on with it. 

How long do bear markets last? 

The answer to this question is very simple, but unsavory. Unfortunately, there’s absolutely no way of predicting how long a bear market will last. Yes, experts may predict a trend reversal from bearish to bullish using various technical indicators, to a certain extent. But when it comes to ascertaining the true length of a bear market, we have no concrete number.

That’s not the end though. There’s one thing that we can agree on wholeheartedly. And that is that bear markets don’t go on for as long as bull markets. You see, bull markets can go on for years at a stretch. For instance, the longest bull market in history went on for as many as 3,453 days starting from March 09, 2009 to August 22, 2018. Till date, we haven’t had any bear market that boasts of a similar length.

That’s all well and good. But then, history must have something to tell us about the length of bear markets though, right? Let’s dig deep into the bear markets of the past and see if we’re able to get any insights into the typical length of a bear market.

Bear markets of the past: A global overview

We already know that a market decline of 20% or more is automatically declared as a bear market. Taking this into consideration, on a global scale, here’s what we found out.

  • Bear markets have lasted anywhere between a few months to over 3 years.
  • The average length of a bear market worked out to approximately around 15 months. 
  • The market declines, measured in percentage points, ranged from around 23% to up to 92%. 
  • The average market decline came up to around 49%. 

While these figures seem to bring about a lot of clarity to the ultimate question we’re trying to address in this chapter, there’s something that you also need to factor in. This assessment includes figures from all of the stock markets in the world as a whole, including both developing markets and developed markets.

A minor setback with this kind of an assessment occurs on account of the fact that the stock markets of developed countries like the U.K. and the U.S. tend to have fewer bear markets and with shorter durations. On the other hand, the stock markets of developing countries such as India, Brazil, and China, tend to witness more bear markets with longer durations. So, the average that we’ve arrived at above - that’s the average of some massive extremes. 

A better way to assess the duration of bear markets would be to look at each market individually. So, let’s begin with the American stock markets.

Bear markets of the past: An overview of the U.S. markets

Accounting for the fact that the global overview may not be an accurate representation of the typical length of a bear market, we’ve also compiled some data on the biggest and the most developed stock market in the entire world - the U.S. market.

For the U.S. data, we’re going to focus only on one index - the S&P 500 Composite Index.

Time frame

Number of bear markets

Average market decline (%)

Average length of the bear market in days

1929 - 2020

26

-35.62%

289

1949 - 2020

13

-32.40%

343

1987 - 2020

6

-36.25%

238

As you can see from this data, the number of bear market incidents have been going down steadily since the conclusion of World War 2. That’s not all. Since 1987, the average length of the bear market has also gone down to just 238 days, which is approximately around 8 months.

Bear markets of the past: An overview of the Indian markets

Now that we’re done analyzing the global and the U.S. stock markets, let’s get on with the Indian stock markets. Since India is a developing economy, its stock market tends to be a bit more volatile than that of the U.S.. Consequently, we also have a higher number of bear markets.

Here’s an analysis of the bear markets that we’ve seen till date, with the BSE Sensex as our benchmark index. 

Time frame

Average market decline (%)

Average length of the bear market in days

Oct 1990 - Mar 1991

-39.26%

150

Apr 1992 - Apr 1993

-56.45%

360

Sep 1994 - Nov 1998

-40.94%

1500

Feb 2000 - Sep 2001

-57.81%

570

Jan 2008 - Mar 2009

-62.05%

390

Nov 2010 - Dec 2011

-28.30%

390

Mar 2015 - Feb 2016

-23.44%

330

Feb 2020 - Apr 2020

-32.98%

44

Total Average 

-42.65%

467

Although the average length of the Indian bear market comes up to around 467 days, it doesn’t do full justice to the real picture. This is because the average length of a typical bear market has steadily decreased as the popularity of the Indian stock market rose. With an increasing number of institutional, non-institutional and retail investors participating in the stock market, it has managed to make a recovery much faster in recent years.

The recent bear market of 2020 is a great example of this. All it took was approximately 44 days for the market to give into the bulls. And 2020 was the year with the most number of demat accounts to have ever been opened by retail investors. 

That said, the bear market of 2020 was brought about by the COVID-19 pandemic and the subsequent knee-jerk reaction from the market participants. And so, the recovery was also bound to be far quicker than, say, in case of a recession-driven bear market. The length of bear markets brought about by fundamental and economical factors in the current Indian stock market scenario still remains to be seen.

Wrapping up

With this, we’re finally done with this chapter. In the next one, we’ll be directing our focus towards the various ways in which we can try to predict the end of a bear market. After all, that information is pivotal to charting a good financial plan for exiting a bear market or entering a subsequent bull market, isn’t it?

A quick recap

  • There’s absolutely no way of predicting how long a bear market will last. 
  • While experts may predict a trend reversal from bearish to bullish using various technical indicators, to a certain extent, when it comes to ascertaining the true length of a bear market, we have no concrete number. 
  • Bear markets don’t go on for as long as bull markets. You see, bull markets can go on for years at a stretch. 
  • In the American markets, the number of bear market incidents have been going down steadily since the conclusion of World War 2. That’s not all. Since 1987, the average length of the bear market has also gone down to just 238 days, which is approximately around 8 months. 
  • The average length of the Indian bear market comes up to around 467 days. But it doesn’t do full justice to the real picture. This is because the average length of a typical bear market has steadily decreased as the popularity of the Indian stock market rose.
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