Chart of the Week: Bulls Outrun Bears

Jeffrey DeMaso

Portfolio Manager

The S&P 500 index dodged bear country today, but I think we can all agree that it’s felt like a done deal for weeks.

While bear marketsA period in which stock prices decline significantly from recent highs and remain below previous high marks for weeks or months. Generally, a decline of at least 20% in stock prices is considered the threshold marking the start of a bear market. are challenging, one way I “bear” them is by not thinking of them as punishment. Bear markets are the fare we pay to ride the long-term compounding train that is the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market.

In my opinion, it is a ride worth enduring because bulls have easily outrun bears over time.

To put some stats behind the chart: The average bull marketA period during which stock prices rise significantly from recent lows for weeks, months or years. ran for about five years and returned 158%. In contrast, the average bear marketA period in which stock prices decline significantly from recent highs and remain below previous high marks for weeks or months. Generally, a decline of at least 20% in stock prices is considered the threshold marking the start of a bear market. (peak to trough) lasted a little over a year, with an average decline of 36%. The average return one year after the bottom? 43%.

So, if this is an “average” bear market, then we are roughly halfway through—both in terms of length and drawdown. Of course, no bear market is average. What is clear is that if we are, in fact, in a bear market, then we are much closer to the bottom than we were five months, or even five weeks, ago. And history tells us that, as much as possible, we should stick around to participate in the returns coming out of a bear market.