Chart of the Week: Bulls Outrun Bears

Chart of the Week: Bulls Outrun Bears

May 23, 2022

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 markets 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 stock 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 market ran for about five years and returned 158%. In contrast, the average 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.

Chart Showing Bull Markets Last Far Longer Than Bear Markets
Note: Chart shows cumulative S&P 500 index price returns on a monthly basis, resetting to 0% with the start of each extended period of gains or losses (bullish and bearish markets, respectively), from September 1957 through April 2022. Note that the 2009 decline reached -56.8%, slightly off the bottom scale displayed. Sources: Morningstar, Adviser Investments.

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