When will the bear market end?

Key points

  • The current bear market has been going on for just over ten months.
  • This is longer than the average bear market at 9.6 months, but shorter than the longest on record which lasted a whopping 20 months in 1973/74.
  • While we don’t know for sure when this current bear market will end, we can use the history to provide some insight into what we have in store.
  • For investors, it could mean we have a long way to go, which means looking at ways to protect your portfolio in the meantime.

Tomorrow!

No, not really. Well, at least, probably not. That would be nice but right?

The truth is, we don’t know for sure when the current market will end. But before clicking on this article thinking it was a to complete waste of time, is there anything we can do to give us some clues.

Bear markets have already happened. Many times. Looking back on history won’t tell us for sure how long this bear market will last, but we can get an idea of ​​how long they will last Generally Last.

With this information in hand, we can also examine the shortest bear markets in history, as well as the longest. Put it all together and we can start to gain a little more understanding of how much more pain we can expect before things start to improve.

So, that’s exactly what we’re going to do.

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The stock market tells the future… sort of

There seems to be a lot of bad news on the horizon. The likelihood of an economic recession appears to be increasing, interest rates are rising and inflation remains high. The housing market has also started to pull away from its all-time highs.

You might look at this information, then look at the stock market and think “wow, things are going to get so much worse.”

You may be right, but the fact is that the stock market looks to the future. Not perfectly, of course, but in economic terms it’s what’s called a leading indicator.

This is because investors and traders take into account how stocks could be affected by future economic news. This is known as ‘pricing in’, with the prices they are willing to pay for the stock now reflecting how they expect future economic performance to affect them.

So a lot of the volatility that we’ve experienced so far in the stock market hasn’t been due to current corporate revenue and growth, in fact, it’s remained quite strong in the technology sector as well.

Prices are falling because the outlook is negative. Investors are evaluating stocks like Meta, Tesla and Alphabet in the expectation that revenues and growth will slow in the coming year as economic growth slows.

The same goes for good news.

When the economy is in the doldrums, there will eventually come a point where analysts will start to see a light at the end of the tunnel. This can see stock markets rally, even though the economy itself is still many months away from recovering.

The point of all of this is to say that just because it looks like we have at least another year of economic hardship ahead, doesn’t necessarily mean we will be in a bear market for that long.

How long does the bear market last on average?

The impact of a bear market on a nation’s wealth can be devastating, but they tend to last a surprisingly short period of time. In fact, the average bear market only lasts 9.6 months.

So, in most cases, the stock market downturn ends in less than a year. This goes to show how quickly things can change and why it is incredibly difficult to time the market perfectly.

Obviously this is the average, which means that there will be many bear markets that will last longer and many that will not last as long. The shortest bear market we have ever seen occurred when the pandemic started, lasting just 33 days.

Yes, just over a month and the bear market was over, and then we saw almost two full years of incredible returns.

As for the longer one, well, it’s a little more depressing. The early 1930s saw a large number of bear markets in a short space of time. Between mid-1929 and the end of 1933, there were seven (!) bear markets in total, but there were periods of strong growth in between.

The longest bear market was in 1973/74 which lasted about 20 months. Still less than two years, but still a significant amount of time to see no recovery in stock prices.

So we have the shortest ever at about a month, the longest ever at 20 months, and the average in between at about ten months. So where does that leave us?

When will the bear market end?

The current S&P 500 bear market was officially called on June 13, 2022, when the market fell 20% from its high. This fall started on January 3, 2022, which marks the beginning of the current bear market.

So that means it’s been going on for a little over ten months.

Well, the good news is, we’ve gotten over the hump (hopefully). This is now officially a longer-than-average bear market. But how long will it last? Well, it could become the longest bear market ever.

The pandemic has created a very unusual set of economic circumstances, so it’s not entirely out of the question. Let’s park it for a minute and use the previous worst ever as a benchmark.

If the current bear market were to last 20 months, to equal the longest ever, that means we are just over half. Another nine and a half months would take us to October next year, at the end of the current bear market.

So the bear market ending between now and October 2023 is probably a pretty reasonable assumption. Again though, it is only a projection and the reality remains to be seen.

In many ways, however, this timeline makes sense. We are likely to expect further volatility as rates continue to risk and inflation slowly begins to fall. Going into next year we should hope to see progress on the inflation front which will mean that the Fed can start to slow rate hikes and maybe even hold them steady.

Markets are likely to be quite happy with this and we could start to see some recovery attempts.

The prospect of monetary policy easing may also allow public companies to offer slightly more encouraging guidance than they have been recently. This in turn would further encourage investors and the whole bull cycle could start again.

These are all conjectures, but that’s how the market works. We see cycles of good news and positive expectations leading to more good news and better expectations.

So, as difficult as the current bear market has been so far, hopefully we are starting to get on the right side.

What does this mean for investors?

The key point is really that you can’t time the market. It’s impossible to really know when the bear market will end and when stocks will begin their rally. We know it will happen eventually, and when it does, there could be significant financial rewards.

Compared to the average bear market, the average bull market lasts much longer at 31 months. It means that sitting on the sidelines with cash and waiting for the perfect moment to come in can lead to serious lost earnings.

That said, it stands to reason that investors would want to limit their exposure to volatility as we remain in a bear market.

To help with this, we’ve created an AI-powered hedging strategy that can be added to all of our Foundation Kits. It’s known as Portfolio Protection and it starts with using AI to analyze your portfolio and evaluate it sensitivity to risks such as interest rate risk, overall market risk and even oil risk.

Once this analysis is complete, the AI ​​automatically implements sophisticated hedging strategies to protect against them. This is re-run and adjusted on a weekly basis, to always take into account the most up-to-date information.

It’s like having your own personal hedge fund, right in your pocket.

Download Q.ai today for access to investment strategies based on artificial intelligence.

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