This graph depicts the price level of the S&P 500 Index and highlights each bull and bear market since 1950. During this period, the average bear market lasted approximately 320 trading days (1.3 years), exhibiting an average price decline of about 35 percent. In contract, the average bull market lasted over 1,290 trading days (5.2 years), representing a trough to peak increase of roughly 164 percent. In other words, the duration and magnitude of bear markets, though painful, pale in comparison to bull markets, underscoring the importance of investing across full market cycles and rewarding investors who maintain long-term perspective.
During times of heightened volatility and stock market stress, investors may naturally question their asset allocation.
The third quarter of 2015, January 2016 and the months following the U.S. presidential election in 2017 are recent examples of frenzied times. For investors or advisors trying to determine what action, if any, to take in response to increased market volatility, a long-term perspective can be helpful.
Since 1950, there have been nine bear markets for the S&P 500 index, defined as a 20 percent or more decline in market value from the Index’s previous peak. Bear markets typically occur when investors believe stocks are overvalued and more investors look to sell stocks than buy them.
While the circumstances leading to market downturns have varied in the past, it’s important to recognize that a bear market occurs every few years and is not particularly remarkable in a historical context. The graph on side one shows that each bear market to date was usurped by a bull market that both recovered from previous lows and grew to new highs.
Today may be no different. Following the market bottom of March 2009, the current market expansion is over 2,200 days old (and counting), reflecting an increase of over 290 percent. The recent bouts of volatility in 2015 and 2016 offered a lot in the way of noise but ultimately failed to breach a 20 percent bear market threshold as of this writing.
Markets follow the path of least resistance, which is to say they rise when buyers exceed sellers and fall when sellers exceed buyers. The truth is exacerbated by investor psychology with greed on the rise and fear on the fall. In the interim, there’s market volatility, which is neither expansionary nor recessionary and akin to turbulence on a plane.
Disciplined investors don’t succumb to market volatility just as passengers don’t remove themselves from a bumpy flight. While it remains unclear how long the current bull market will last, how severe the subsequent downturn will be or how much volatility will emerge in-between, find wisdom in stock market history as rewards await the long-term investor.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be a representative of the stock market in general.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
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