Understanding bear markets, corrections and crashes
The pace with which the Coronavirus bear toppled the
longest-running bull market in history was startling.
The Dow Jones Industrial Average officially entered
the “Coronavirus bear market” in just 20 trading days,
easily making it the fastest such slide in stock market
history. The second fastest was 1929 and that took 36
Lest we forget: the highest closing record for the DJIA
was set on February 12, 2020, when it closed at
29,551.42. Less than one month later, on March 11th,
the DJIA closed at 23,553.22, down 20.3% from its
high and officially ending the longest-running bull
market in history that started in March 2009.
Want more data to compare just how swift and severe
this Coronavirus bear has been? Consider this:
according to Bloomberg, the average number of days
from peak market to bear market territory is 255 and
the median is 156. There are exactly 253 trading days
Bear markets defined
In technical terms, the stock market enters a bear
market whenever stock prices have fallen over 20%
from their recent peaks. A bull market, on the other
hand, is when stock prices rise by at least 20%.
There is debate as to where the true origins of these
expressions came from, but many suggest that it has
to do with how each animal attacks: a bull thrusts its
horns and enemies upward whereas a bear swipes its
paws and enemies downward. Neither sound
The silver lining, however, is that bear markets are
typically shorter than bull markets. In fact, an
examination of the historical performance of the S&P
500 from 1926 through March 2020 shows that:
The average bear market lasted 1.3 years
The average bull market lasted 6.6 years
Stock market corrections & crashes
It is important to distinguish a bear market from a
market correction, which is shorter and involves less
of a market decline. Market corrections are shortterm
trends that typically last less than a few months
and involve stock market declines of at least 10% –
but not as severe as the 20% fall of a bear market.
Stock market crashes, by contrast, are when stock
markets plummet by more than 10% in a single day.
The Great Crash of 1929 consisted of market drops of
13% and 12% on successive days. The stock market
crash of October 19, 1987 – known as Black Monday
– saw the market drop 23%. And on March 16, 2020,
the market crashed when it dropped 13%.
Historical bear markets
Between 1926 and March 2020, there have been
eight bear markets, ranging in length from about 6 –
24 months and bringing market declines ranging from
more than 80% to just over 20%. Here are the more
memorable bear markets.
Great Crash of 1929: 83.4% drop and lasting 34
Vietnam & Assassinations of 1968-1970: 29.3%
drop and lasting 18 months
Oil Embargo of 1973-1974: 37% drop and lasting
Crash of 1987: 29.5% drop and lasting 3 months
Dot.com Bubble of 2000-2002: 44.7% drop and
lasting 25 months
Subprime Mortgage Crisis of 2007-2009: 50.9%
drop and lasting 17 months
Coronavirus of 2020: TBD
Beware of bear market rallies
In a normal bear market, there will of course be days
or weeks when markets rise. It is important, however,
to distinguish a bear market rally from the beginning
of a bull market.
Consider the rallies that occurred during a few of the
past bear markets:
Bear market rally
Days After rally until bear market hit bottom
Return 3 years after bear market rally
Subprime Mortgage Crisis
Source: Bloomberg. Past performance does not guarantee future results.
The reality is that even bear markets will have what
some might wrongly call bull market phases.
Tips for investors
The question is: should the average investor remain
invested when a bear market starts swiping its paws
and everything downward?
While the answer to that question depends on the
individual investor, it is important to beware of the
tendency to over-react to fears of a bear market or
thrills of a bull market. Often times, individual
investors tend to let their emotions adjust their
holdings, which can result in selling after prices have
fallen sharply, instead of buying at low prices (or
buying after stocks have risen to unsustainable
Whether you will be able to out-wait the Coronavirus
bear market and rebuild your portfolio to your
satisfaction depends upon a deluge of factors,
including the duration of the Coronavirus bear, your
risk tolerance, your time to invest, the strength of your
investments and the choices you make going forward.
But your financial advisor can bring you careful
planning and a cool head to help you reach your
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