Why are rising markets called bull markets and falling markets called bear markets? As with most things in finance, there are lots of different explanations.
The most common one I’ve heard is that “bulls attack by throwing their head upwards, whereas bears swipe the claws downwards.” Happy to take that on trust, to be honest! Other explanations include the 18th-century bearskin trade or the Elizabethan tradition of bulls fighting bears in the arena.
At the end of last week, the S&P 500 finally climbed back above its previous all-time high, it’s taken about two years. We haven’t seen such a protracted bear market period since the financial crisis of 2007-09 and before that, the bursting of the dot-com bubble at the end of 1999-2003, so it’s been quite painful for investors who haven’t seen much (if any) growth in that time. Inevitably, the impatient start to question whether this time it’s different and whether markets will ever go up again – but of course, eventually, they do.
Source: Factset/7IM
I have often said that all-time highs aren’t important – equity markets go up over time, so all-time highs are completely normal. Ignore it; move on. But! While in general, all-time highs don’t matter, getting back to an all-time high defines the transition between bull and bear markets.
Here’s how it’s worked out:
Once an index falls 20% from its high, it’s in a bear market.
You only count a bear market over once the previous high is reached (last Friday) ….
… and then it’s easy to identify where the low point was – and you count the new bull market as starting from that day (12th October 2022) …
So, I can now exclusively reveal that the 2022 S&P 500 bear market lasted just over 9 months – and the peak to trough was -25%.
Let’s put those numbers in historical context – using one of my (many) favourite charts, although I am sorry it’s a little blurry!
Source: 7IM, Bloomberg Finance L.P. , Past performance is not a guide to future returns, chart(s)/data for illustration purposes. Returns and analysis is based on daily price returns. The chart is for illustrative purposes only.
So, the 2022 bear was about average in length and slightly better in terms of the pain suffered. More teddy than grizzly.
Turns out bear markets are – as the chart is meant to show – very, very survivable!
As I have said many times, we must be fully invested to benefit from the green upsides on the chart and suffering the orange downsides is but a small price to pay. As the chart shows, the upsides MASSIVELY outweigh the downsides.
I hope you have found this interesting, but if you have any questions about this piece or any other finance-related matter, please do not hesitate to get in touch.
With very best wishes,
Yours sincerely
Graham Ponting CFP Chartered MCSI
Managing Partner
