Historical Bull and Bear Markets for the Dow: 1900-Present NYSEARCA:DIA

Contrarian investing is a strategy that involves going against prevailing market trends. The contrarian investor buys with conviction when the crowd is selling in fear. This approach is not for the faint-hearted, as it requires a strong belief in one’s analysis and the courage to act against the crowd. However, https://1investing.in/ history has shown that those who dare to be different often make the greatest fortunes in the ashes of bear markets. As we find ourselves in the midst of a brutal bear market in 2022, it may be a good exercise to study the past in order to be better educated on what the future might hold for markets.

Then in 2008 and 2009, the financial crisis and bear market led to the deepest recession in the American economy since the end of World War II. In the early 2000s, stocks began to slide and the economy slowed as the dot-com bubble burst. Now, as the Federal Reserve raises interest rates to tackle the fastest inflation in decades, there are concerns among investors the moves will cause the economy to contract.

1. Savvy investors study the history of bear markets to learn what to expect and how to prepare to navigate them successfully.
2. To hit the 20% gain threshold, the Dow needs to get back to 10,141.43, which is still a long ways away from the Dow’s current level of 9,300.
3. So whether it is through short selling, buying put options, or holding inverse ETFs, there are plenty of ways to trade and invest in a bear market.
4. Small movements only represent a short-term trend or a market correction.
5. And as an investor, the direction of the market is a major force that has a huge impact on your portfolio.

Recessions have often followed bear markets, but one does not necessarily cause the other. Stock prices generally reflect future expectations of cash flows and profits from companies. As growth prospects wane, and expectations are dashed, prices of stocks can decline. Herd behavior, fear, and a rush to protect downside losses can lead to prolonged periods of depressed asset prices. When prices are low, as they are during a bear market, there are a set of investors who will find this to be a good time to buy.

The stock market saw healthy gains since the crash in March 2020, with the S&P posting a 26% return in 2021. Since the end of World War II, there have only been 13 bear markets and 12 bull markets using the standard 20% rally and decline measure. The average bull or bear bear markets history since then has lasted 911 calendar days. From 1929 to 1934 alone, there were 9 bears and 8 bulls, and the average bull or bear lasted just 105 calendar days. A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs.

Some of the Nastiest Bear Markets

The bear market that began in March 2000 was triggered by the bursting of the Dot-Com bubble. If you want to own stock, you can’t escape an occasional cycle that saps your portfolio’s value temporarily. According to Gallup, about three out of five Americans own stock and can be directly affected when the market swoons. Even if they don’t sell any shares, the perceived loss of wealth could lead them to hold off on purchases such as a new car or a trip, which could contribute to a recession.

Bear 2: June 1948—June 1949

During bear markets, the crowd’s sentiment often swings towards extreme pessimism, leading to panic selling. While seemingly chaotic, this mass exodus from the market presents a golden opportunity for the contrarian investor. In the annals of financial history, bear markets have often been painted as harbingers of doom, periods of economic downturn that incite fear and uncertainty. Yet, a discerning examination of these periods reveals a different narrative that underscores the potential of bear markets as fertile grounds for investment opportunities.

The stock markets tumbled into a sudden bear market when the novel coronavirus officially became designated as a pandemic by the WHO. But the definition of a recession is two consecutive quarters of economic decline. In this case, the sudden crash brought on a bear market but the economy did not dip into a recession. In fact, since 1929 there have been a total of 26 bear markets but only 15 recessions over that same time period. For example, a bear flag usually occurs multiple times during a bear market, and being able to predict these can lead to locking in profits as the stock makes another drop lower. For long-term investors, the bear market is one of the best times to add to your portfolio at lower prices or through dollar cost averaging.

Ironically, the moment of maximum pessimism—when doomsayers abound—is often the most opportune time to embrace the stock market. As the masses succumb to panic and hasty decisions, a discerning investor seizes the chance to dive in vigorously. The adage “buy when there’s blood in the streets” resonates for a reason—it signifies when fortunes can be made. And if the blood happens to be your own, it’s a signal to double down and reap the rewards.

Investors trying to forecast future stock market returns should consider the performance of the S&P 500 across all market environments. For instance, the index gained 1,730% over the last three decades, compounding at 10.1% annually. Importantly, the S&P 500 achieved those returns despite suffering four bear markets and three recessions. Examining this concept in light of historical events, the financial crash of March 2009 serves as a prime example.

For example, the current bull market was preceded by a global pandemic unlike anything the world had seen in over a century. The fallout from that event — supply chain chaos, government stimulus payments, rampant inflation, and rapid interest rate increases — means the stock market may not perform as history suggests. In the case of equity markets, a bull market denotes a rise in the prices of companies’ shares. In such times, investors often have faith that the uptrend will continue over the long term. In this scenario, the country’s economy is typically strong and employment levels are high. Bear markets — when stocks decline at least 20 percent from their recent peaks — are relatively rare, and they frequently precede a recession.

Understanding Dow’s Long-Term Chart: The Evolution of Bear and Bull Markets

Because the businesses whose stocks are trading on the exchanges are participants in the greater economy, the stock market and the economy are strongly linked. Stocks fell 84 percent between Sept. 3, 1929 and June 1932, and they did not fully recover until January of 1945. For example, after the S&P 500 bottomed at 777 on Oct. 9, 2002, following a 2.5-year bear market, the stock index then gained 15% over the following month and a total of 34% over the following year.

The S&P 500 and the Nasdaq have entered bear market territory, with the Dow Jones a few percentage points from dropping below the threshold. In a bull market, there is strong demand and weak supply for securities. In other words, many investors wish to buy securities but few are willing to sell them. As a result, share prices will rise as investors compete to obtain available equity. A bear market is when stocks fall 20 percent from a recent high. That happened Monday, when the S&P 500 fell 22 percent from Jan. 3.

What’s more, since World War II, bear markets have lasted 13 months on average with stock markets losing more than 30 percent of their value. In addition, investors may benefit from taking a short position in a bear market and profiting from falling prices. There are several ways to achieve this including short selling, buying inverse exchange-traded funds (ETFs), or buying put options. A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value.

What Happens In a Bear Market

It doesn’t seem normal to see stock prices fall by so much so fast, but rest assured that bear markets are a completely normal part of the stock market. If it feels like we are in a bull market more often than a bear market, you’re also correct. Since 1928 (well before it had 500 different companies), the S&P 500 has seen 26 bear markets and 27 bull markets. It’s why the S&P 500 has seen an average annual return of about 10.5% since 1957 when the index hit 500 stocks. So while it might seem unnatural for stocks to erase so much of their recent gains, in the long run, the market is headed on an upward trajectory.

Inflation seeped into the economy, and unemployment rates peaked at 9%. The chart below traces the history of bull and bear markets since 1942 and the performance of the S&P 500 during those periods. It demonstrates how short bear markets have been compared to bull markets, historically. Most recently, the Dow Jones Industrial Average went into a bear market on March 11, 2020, and the S&P 500 entered a bear market on March 12, 2020. This followed the longest bull market on record for the index, which started in March 2009. Stocks were driven down by the onset of the COVID-19 pandemic, which brought with it mass lockdowns and the fear of depressed consumer demand.

However, both the S&P 500 and the Nasdaq 100 made new highs by August 2020. A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. In the 1970s, a mix of high inflation, an oil crisis and the collapse of an economic agreement between nations led to another bad period for the stock market. This is a short bear market that lasted only 33 days but saw a drop in the market of nearly 34%. The COVID pandemic wreaked havoc on the economy, with an economic contraction of 31.4% in the second quarter.