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Have Bear Markets Been Permanently Banned?

You have to wonder… but here’s a historic take on it

by Bob Stokes
Updated: June 01, 2018

This is from a May 29 CNBC article:

The European-inspired panic that brought down the stock market on May 29 will ultimately turn out to be a buying opportunity, [said a former hedge fund manager].

The point is not the goings-on in Europe or any other news. It's that whatever pundits blame for a market dip, that it will be just that, a temporary dip and not a real bear market.

That's a curious sentiment given the bull market has stretched for more than nine years. Throughout history, no bull market has lasted longer than ten... So, it's at times like this that we must remind ourselves that another bear market is inevitable.

Wall Street's definition of a bear market is a decline of 20% or more from an all-time high.

By this commonly accepted definition, the slide in the Dow Industrials from the peak high of 14,164 (Oct. 9, 2007) through its low of 6,547 (March 9, 2009) was obviously a bear market. The Dow lost 54% during those 17 months.

Standard & Poor's Corporation provides data on ten other bear markets that fit the definition above (two of the S&P 500 declines are slightly under 20%):

  • August 1956-October 1957: -21.6%
  • December 1961-June 1962: -28.0%
  • February 1966-October 1966: -22.2%
  • November 1968-May 1970: -36.1%
  • January 1973-October 1974: -48.2%
  • September 1976-March 1978: -19.4%
  • January 1981-August 1982: -25.8%
  • August 1987-December 1987: -33.5%
  • July 1990-October 1990: -19.9%
  • March 2000-October 2002: -49.1%

As you can see, this data only goes back to the mid-1950s.

According to Global Financial Data and MSNBC, the S&P 500 surrendered 29.6% from May 1946 to June 1949. Most people have at least heard of the most infamous bear market in U.S. history, when stocks fell 86% from 1929 to 1932, the great Crash of 1929. That was also the period of America's second deflationary depression. The first one occurred between 1835 and 1842.

In the several decades between the two deflationary depressions, America's financial system also experienced a number of shocks, like the Panics of 1873, 1893 and 1907.

The point is: Bear markets are a conspicuous part of American history and our financial system. Yet many market observers today, just like they did near previous major peaks, appear to be ignoring this obvious fact.

Unless human behavior changes and history stops repeating itself, it's not a matter of if, but when the next bear market will arrive.

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