Are you ready for the next bull market? | Smart Change: Personal Finance

(Trevor Jennewine)

Over the past year, rampant inflation has called into question the strength of the economy and this has triggered a steep drop in the stock market. Indeed, the broad base S&P 500 it had its worst first half since 1970 and the index entered bear market territory in the second quarter.

The S&P 500 has rebounded slightly since then – it stopped 17% from its high on Sept. 12 – but the bear market isn’t technically over until the index breaks out of its previous high. For context, the last time the S&P 500 peaked at 4,797 on January 3, 2022. That was 253 days ago when this article was written.

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How long do bear markets last?

The S&P 500 has fallen into correction territory 26 times in the past five decades, meaning the market drops 10% or more about once every 1.9 years. Bear markets are more severe market corrections. The S&P 500 has fallen into a bear market seven times in the past five decades, meaning the market falls 20% or more about once every 7.1 years.

For bear markets over the past 50 years, the chart below shows the start date, low date, peak loss, and the number of days it takes for the S&P 500 to hit the low. Of course, the bear market that started earlier this year is not included as the S&P 500 could still drop further.

Start date

Minimum date

Peak loss

Time thoroughly

1/11/1973

10/3/1974

48.2%

630 days

11/28/1980

8/12/1982

27.1%

622 days

08/25/1987

12/4/1987

33.5%

101 days

24/03/2000

10/09/2002

49.1%

929 days

10/9/2007

3/9/2009

56.8%

517 days

19/02/2020

23/03/2020

33.9%

33 days

Clearly, bear markets vary greatly in duration and severity. But historical data can still provide a meaningful insight into the current situation. Notably, the S&P 500 fell an average of 41.4% during bear markets over the past five decades and it took an average of 472 days to reach the low. In other words, if the current bear market falls exactly in line with the average, the S&P 500 is still 219 days from the low.

To build a complete picture of past market cycles, investors should also consider the bull markets of the past five decades. The chart below shows the start date (note these are the same as the low dates listed above), the peak date, the peak gain, and the number of days it takes the S&P 500 to reach the maximum.

Start date

Peak date

Gain peak

Time to be on top

10/3/1974

11/28/1980

125.6%

2,248 days

8/12/1982

08/25/1987

228.8%

1,839 days

12/4/1987

24/03/2000

582.1%

4,494 days

10/9/2002

10/9/2007

101.5%

1,826 days

3/9/2009

19/02/2020

400.5%

3,999 days

23/03/2020

1/3/2022

114.4%

651 days

Based on the data above, the S&P 500 has risen by an average of 258.8% during bull markets over the past five decades and it took an average of 2,510 days to reach the top. In other words, bull markets are higher and last longer than bear markets. For this reason, bull markets have always wiped out all losses the S&P 500 suffered during bear markets.

How can you prepare for the next bull market?

The most important thing any investor can do to prepare for the next bull market is to maintain a long-term mindset. Ignore the everyday noise and focus on the big picture instead. The worst mistake an investor can make is trying to time market cycles.

Consider the following data from JPMorgan Chase: If you had invested $ 10,000 in the S&P 500 in early 2002, that amount would have grown 517% to $ 61,685 by the end of 2021. But if you had missed the best 10 days during that period – just 10 days – that amount initial would have grown only 183% to $ 28,260 by the end of 2021. And guess what? Six of the 10 best days during that time period actually occurred during a bear market and two of the remaining four days actually occurred the day after a bear market low.

In other words, the stock market’s best days often happen during a bear market, and missing just a few of those days can cause tremendous damage to your portfolio. This means that the best way to prepare for a bull market is to stay invested during any downturn. Better yet, investors should continue to buy high-quality stocks on a regular basis.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has no position in any of the titles mentioned. The Motley Fool has no position in any of the titles mentioned. The Motley Fool has a disclosure policy.

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