Bull markets and bear markets – some facts

Quite rightly there is much talk at the moment of whether we are at or close the top of the current bull market and hence about to enter bear market.

I thought it might  be helpful to provide a few statistics and facts on both bull markets and bear markets. Whilst these are all very boring statistics I urge you to read on as they might just save your financial life one day.  These statistics all relate to the USA S&P index  covering the period from the 1920’s to the current time. Statistics for the British FTSE would be very similar.

A bear market is defined as a fall in the index value of at least 20% from a previous high.

There have been on average around one bear market every four or five years. They are not at all uncommon although of course they do not occur like clockwork every four or five years.

There have been 16 bull markets since 1929. Most bull markets last between 2 and 5 years with an average duration of around 3.5 years and all bar 4 have lasted less than five years.

The longest bull market in modern history (commencing in 1990)  lasted slightly over nine years. The current bull market is now the second longest bull market in modern history and has lasted around 7 ½ years

The average price earnings ratio over modern history is around 17. The current price earnings ratio is around 23. The S&P would need to fall by around 30% to get back to its average P/E ratio.

When a bear market does occur the extent of the decline is generally proportional to the extent of the rise that occurred in the preceding bull market. I.e. big bull markets tend to roll over into becoming big bear markets.

Almost always the bear market will take back at least 50% of the previous bull market run up. The smallest ever give back in modern history was around 30% of the previous bull market run up. There have been  5  instances in modern times where the  bear market give back was actually greater than 100% of the preceding bull market run up.

Bear markets are typically over quite quickly with over 50% completing within 12 months and all bar one bear market having completed within 24 months

Bull markets tend to be relatively slow ponderous affairs whereas bear markets are often quick and very savage affairs.

Whilst there is certainly no guarantee that markets will continue to act as they have done historically that probably is still the way to be betting.

Boring statistics I agree but they should give us all food for thought.

Posted in:
Articles by: