History Says the Bear Market Isn’t Over
Jan 14th, 2009 | By Andrew Gordon | Category: Financial NewsThe U.S. market peaked in October 2007. Of the dozens of predictions I’ve read, the consensus is that the economy will turn around in the second half of the year. The market, as a forward-looking mechanism, should rebound 1-2 quarters prior.
Thus, the rally we’re in now is not considered just another bear market rally, but a sustained rally that is anticipating an improving economy by the second half of the year.
Historically, as the chart below indicates, markets fall an average of 3.4 years after a bank-crisis induced recession. If the four ongoing crises in the U.S. and other countries weren’t included, the average would be even longer.
Past and Ongoing Real Equity Price Cycles and Banking Crises:
Peak-to-trough Price Declines (left panel) and Years Duration of Downturn (right panel)
Sources: Reinhart and Rogoff (2008b) and sources cited therein.
That doesn’t mean the U.S. bear market will last 3.4 years. It could be longer or shorter, depending on the severity of the recession we’re in. But the shortest bear-market duration has been two years: Suffered by Indonesia and Hong Kong in 1997 and Argentina in 2001.
Our bear market is 15-months old. If, as some people believe, it ended when the market bottomed last November, the bear market would have lasted 13 months.
That would make this bear market the one big exception of all the financial crisis-induced recessions dating back to Norway’s in 1899.
Possible? I suppose. But extremely unlikely.
Source: History Says the Bear Market Isn’t Over
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Andrew is currently the Editor-in-Chief of two monthly investment research services INCOME and The Wealth Advantage. He has also become a leading expert in utilizing Exchange Traded Funds to profit from rising and falling market sectors.
