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How Long do Bear Markets Last?

Published on December 7, 2022

The current Bear Market, defined as a loss of 20% or more from an all-time high, has lasted 11 months so far. But did the market hit its low point at -25% on October 13, or will there be more declines to come? While every Bear Market is different, history can provide some perspective on where we are now. The median duration of the decline for the 11 Bear Markets charted below is 15 months while the median loss is 34%.

DURATION AND MAXIMUM LOSS OF S&P 500 BEAR MARKETS SINCE 1960 (JAN 1960 – NOV 2022)

Source: Dow Jones Indices LLC

The chart shows drawdowns on the left axis and number of months until you hit the ultimate market bottom along the bottom axis. Red dots indicate the bear market was associated with a recession, grey dots are not associated with a recession, and the yellow dot is the current bear market. Most bear markets associated with a recession are longer than 16 months, suggesting we may have more time to go before we find the bottom. Fortunately for long-term investors, timing the bottom is not required for success.

It’s important to remember that the long-term average annual stock market return of 10% includes all these downturns and recessions. Successful investing requires patience and thinking in terms of years and decades, not months and quarters. While we may become fatigued from the volatility and long grind down and anxious for positive signals, having realistic expectations can help reduce the anxiety. Things will get better, but it might just take longer than you think. For most investors, staying invested and sticking to a well-developed plan is the best course of action.

From the Behavioral Viewpoint


What is Going On?

  1. Fallacy of Control – We want to believe that we can control and manage the situation and need to act. The reality is the cycle will take months or years to complete.

  2. Two for One Loss Aversion – We feel twice as bad about a loss as we do an equivalent gain. The long grinding bear market eats away at us, and we feel emotionally compelled to act.

  3. Anchoring and Fear of Missing Out – Having lost money on paper we anchor on prior high account values and are anxious to make it up and want to be sure we don’t miss out on the rebound.

What can we do?

  1. Reset your expectations based on here and now, look forward from here. The past is gone. Focus on what you can control with predetermined plans and courses of action.

  2. Develop realistic expectations, accepting that investing takes time and positive and negative periods are part of the process. Think in terms of years and decades.

  3. Build a strategy-diverse equity portfolio that is resilient and designed for the long-run with a disciplined investment process designed to drive out emotions.

  4. Work with an experienced financial advisor, who can help you to stay focused on your long-term plans.

Get Behavioral Investing Insights

Behavioral Viewpoints feature new topics each month which are intended to help advisors and investors gain a deeper understanding of how behavior shapes the investing landscape.

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IMPORTANT INFORMATION AND DISCLOSURES

The information provided here is for general informational purposes only and should not be considered an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  It should not be assumed that recommendations of AthenaInvest made herein or in the future will be profitable or will equal the past performance records of any AthenaInvest investment strategy or product.  There can be no assurance that future recommendations will achieve comparable results.  The author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.  AthenaInvest disclaims any responsibility to update such views.  These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any AthenaInvest representative.

You are solely responsible for determining whether any investment, investment strategy, security, or related transaction is appropriate for you based on your personal investment objectives and financial circumstances.  You should consult with a qualified financial adviser, legal or tax professional regarding your specific situation.  Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

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